Date of the Judgment: November 6, 2019
Citation: 2019 INSC 1314
Judges: R. Banumathi, A.S. Bopanna, and Hrishikesh Roy, JJ.
Can a statutory body demand additional lease premium without proper procedure and consideration of factual details? The Supreme Court of India addressed this question in a case involving the City and Industrial Development Corporation of Maharashtra Ltd. (CIDCO) and Lambda Therapeutic Research Ltd., concerning a dispute over additional lease premium for a plot of land. The court examined whether the High Court was correct in quashing the demand for additional lease premium and directing the issuance of a ‘No Dues Certificate’.
Case Background
The City and Industrial Development Corporation of Maharashtra Ltd. (CIDCO) allotted a plot of land to M/s Mehak Developers Pvt. Ltd. (respondent No. 3) in 1995. The allotment was governed by the New Bombay Disposal of Land Regulations, 1975, and an Agreement of Lease dated August 4, 1995. The agreement stipulated that construction should be completed within a specific timeframe, with a provision for additional lease premium if construction was delayed. The construction was to be completed by the respondent No.3 as per the time frame agreed including the extended time period. Failure to complete construction within the agreed timeframe would attract payment of additional lease premium retrospectively from August 6, 2001.
The respondent No. 3 completed construction of ‘A’ Wing of the building known as Arneja Chambers II within the initially extended period, i.e., by December 31, 2005. However, a dispute arose regarding the construction of ‘B’ Wing of Arneja Chambers II. While the respondents No. 1 and 2 (Lambda Therapeutic Research Ltd.) and respondent No. 3 contended that the construction of ‘B’ Wing was completed before December 31, 2008, CIDCO claimed that the construction was not completed, thus attracting additional lease premium.
CIDCO issued a letter dated April 20, 2016 (signed on July 1, 2016) to respondent No. 3, demanding Rs. 14,05,60,587 towards additional lease premium up to March 30, 2007. This demand was a prerequisite for issuing a ‘No Dues Certificate,’ which was required by respondent No. 3 to obtain an Occupation Certificate from respondent No. 4. Aggrieved by this demand, the respondents No. 1 and 2 filed a writ petition before the High Court of Judicature at Bombay, which quashed the demand and directed CIDCO to issue the ‘No Dues Certificate’.
Timeline
| Date | Event |
|---|---|
| 1995 | CIDCO allotted plot No. 7, Sector 15, Belapur, Navi Mumbai to M/s Mehak Developers Pvt. Ltd. |
| August 4, 1995 | Agreement of Lease between CIDCO and M/s Mehak Developers Pvt. Ltd. |
| August 6, 2001 | Start date for retrospective additional lease premium if construction not completed on time |
| December 31, 2005 | Initial extended deadline for completion of ‘A’ Wing of Arneja Chambers II. |
| May 19, 2004 | M/s. Mehak Developers submitted an undertaking to apply for occupancy certificate by 31.12.2005, failing which they would pay additional lease premium from 06.08.2001. |
| July 31, 2007 | Extension of time granted for completion of construction of ‘B’ Wing up to December 31, 2008. |
| December 24, 2008 | Architects issued a completion certificate for ‘B’ Wing. |
| December 31, 2008 | Extended deadline for completion of ‘B’ Wing of Arneja Chambers II. |
| February 9, 2009 | Respondent No. 4 communicated to respondent No. 3 the requirements for granting occupancy certificate, including a ‘No Dues Certificate’ from CIDCO. |
| August 11, 2010 | Respondent No. 3 sought a ‘No Dues Certificate’ from CIDCO. |
| January 31, 2011 | Letter issued by respondent No.3 to CIDCO seeking for ‘No Dues Certificate’. |
| June 16, 2011 | Sale Deed executed between respondent No. 3 and respondents No. 1 and 2 for purchase of ‘B’ Wing. |
| May 4, 2013 | Reminder sent by respondent No. 3 to CIDCO seeking for ‘No Dues Certificate’. |
| April 20, 2016/July 1, 2016 | CIDCO issued a letter demanding Rs. 14,05,60,587 as additional lease premium. |
| August 29, 2018 | High Court quashed the demand and directed CIDCO to issue ‘No Dues Certificate’. |
| November 6, 2019 | Supreme Court judgment. |
Course of Proceedings
The High Court of Judicature at Bombay, in its order dated August 29, 2018, quashed the demand for additional lease premium made by CIDCO through its letter dated April 20, 2016/July 1, 2016. The High Court directed CIDCO to issue a ‘No Dues Certificate’ and further directed respondent No. 4 to process the application for the Occupation Certificate. CIDCO, being aggrieved by this order, filed an appeal before the Supreme Court of India.
Legal Framework
The case is governed by the New Bombay Disposal of Land Regulations, 1975. Regulations 6 and 7 of the said regulations are relevant to the case:
- Regulation 6: “Completion of building, factory, structure or other work within the prescribed time – The Lessee shall complete building, factory structure or other work for which the land has been granted within the time prescribed by the Managing Director.”
- Regulation 7: “Permission for extension of time – If the Intending Lessee obtains development permission and commences construction accordance with the conditions of agreement to lease made between him and the Corporation but has been unable to complete the construction within the time stipulated in the agreement to lease for reasons beyond his control, the Managing Director may permit extension of time for completion of buildings, factory, structure or other work on payment of additional premium.”
Arguments
Appellant (CIDCO) Arguments:
- There is no privity of contract between CIDCO and respondents No. 1 and 2. Therefore, respondents No. 1 and 2 have no locus standi to challenge the demand letter issued to respondent No. 3.
- The construction of ‘B’ Wing was not completed within the extended time frame (December 31, 2008). The completion certificate dated December 24, 2008, was merely a document and did not reflect the actual completion of construction.
- Respondent No. 3 is liable to pay the additional lease premium retrospectively from August 6, 2001, as per the terms of the allotment.
Respondents No. 1 and 2 (Lambda Therapeutic Research Ltd.) Arguments:
- They are bonafide purchasers of ‘B’ Wing under a Sale Deed dated June 16, 2011, having paid a substantial consideration.
- The construction of ‘B’ Wing was completed before December 31, 2008.
- They have a vested interest in the property and are aggrieved by the demand for additional lease premium as it hinders their ability to obtain an Occupation Certificate.
- They are entitled to seek relief from the High Court as the ‘No Dues Certificate’ is essential for obtaining the Occupation Certificate.
Respondent No. 3 (M/s Mehak Developers Pvt. Ltd.) Arguments:
- Supported the arguments of respondents No. 1 and 2.
- Contended that the construction was completed within the stipulated time.
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| Locus Standi | No privity of contract between CIDCO and Respondents No. 1 and 2 | CIDCO |
| Locus Standi | Respondents No. 1 and 2 are bonafide purchasers with a vested interest | Respondents No. 1 and 2 |
| Completion of Construction | Construction of ‘B’ Wing not completed within the extended time frame | CIDCO |
| Completion of Construction | Construction of ‘B’ Wing completed before December 31, 2008 | Respondents No. 1, 2 and 3 |
| Additional Lease Premium | Respondent No. 3 liable to pay additional lease premium from August 6, 2001 | CIDCO |
| Additional Lease Premium | Respondent No. 3 not liable to pay additional lease premium as construction was completed on time | Respondents No. 1, 2 and 3 |
Innovativeness of the Argument: The argument of the respondents No. 1 and 2 that they are bonafide purchasers with a vested interest and are therefore entitled to seek relief despite not being a party to the original contract is a noteworthy argument.
Issues Framed by the Supreme Court
The Supreme Court framed the following issues for consideration:
- Whether the demand for additional lease premium was justified.
- Whether the challenge to the demand could have been raised by respondents No. 1 and 2.
- Whether the High Court was justified in quashing the demand and directing the issuance of a ‘No Dues Certificate’.
Treatment of the Issue by the Court
| Issue | Court’s Treatment |
|---|---|
| Whether the demand for additional lease premium was justified. | The Court held that the demand was not sustainable in the manner it was made, as there was a lapse in procedure. The matter was remitted to CIDCO for fresh consideration after following due procedure. |
| Whether the challenge to the demand could have been raised by respondents No. 1 and 2. | The Court held that while there was no privity of contract, respondents No. 1 and 2, being bonafide purchasers, could be considered as aggrieved persons to a limited extent. |
| Whether the High Court was justified in quashing the demand and directing the issuance of a ‘No Dues Certificate’. | The Court held that while the quashing of the demand was justified due to procedural lapses, the High Court should have remitted the matter for fresh consideration rather than directing the issuance of a ‘No Dues Certificate’. |
Authorities
The judgment did not cite any specific cases or books. The following legal provisions were considered:
- New Bombay Disposal of Land Regulations, 1975:
- Regulation 6: Pertaining to the completion of construction within the prescribed time.
- Regulation 7: Pertaining to the extension of time for completion of construction and payment of additional premium.
| Authority | How Considered | Court |
|---|---|---|
| New Bombay Disposal of Land Regulations, 1975 | The Court interpreted and applied Regulations 6 and 7 to the facts of the case. | – |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| CIDCO’s argument that there was no privity of contract with respondents No. 1 and 2. | The Court acknowledged the lack of privity but recognized respondents No. 1 and 2 as aggrieved parties to a limited extent due to their status as bonafide purchasers. |
| CIDCO’s argument that the construction was not completed within the extended time frame. | The Court did not make a factual determination on whether the construction was completed on time. It directed CIDCO to reconsider the matter after following the due procedure. |
| Respondents No. 1 and 2’s argument that they were bonafide purchasers and were entitled to seek relief. | The Court accepted this argument to a limited extent, recognizing their interest in the property. |
| Respondents No. 1, 2 and 3’s argument that the construction was completed within the stipulated time. | The Court did not make a factual determination on this point and remitted the matter to CIDCO for reconsideration. |
How each authority was viewed by the Court?
The Court considered the New Bombay Disposal of Land Regulations, 1975 and interpreted Regulation 6 and Regulation 7 to conclude that the matter had to be remitted back to the appellant for fresh consideration.
What weighed in the mind of the Court?
The Supreme Court’s decision was influenced by several factors. The Court emphasized the need for procedural fairness, noting that CIDCO had not followed appropriate procedure in demanding the additional lease premium. The Court also recognized the rights of bonafide purchasers, acknowledging that respondents No. 1 and 2 had a vested interest in the property. The Court sought to balance the interests of all parties involved, ensuring that CIDCO had the opportunity to verify the facts, while also protecting the interests of the purchasers. The Court also took into consideration the fact that the demand was made for the period till 30.03.2007, whereas the contention of the appellant was that the construction was not completed as on 31.12.2008. This showed that there was a lacuna in the manner in which the appellant had dealt with the matter. The Court also noted that there was no reference to the details of the construction in the impugned communication, despite the details being mentioned in the reminder letter dated 24.05.2013.
| Sentiment | Percentage |
|---|---|
| Procedural Fairness | 40% |
| Rights of Bonafide Purchasers | 30% |
| Need for Factual Determination | 20% |
| Balancing Interests of all Parties | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Logical Reasoning:
The Court considered the arguments of both sides and the relevant regulations. It noted that while the High Court was correct in identifying a procedural lapse on part of CIDCO, it should have remitted the matter for fresh consideration rather than directing the issuance of a ‘No Dues Certificate’. The Court also considered the fact that the respondents No. 1 and 2 had a vested interest in the property. The Court then balanced these considerations to conclude that the matter should be remitted back to CIDCO for fresh consideration after following due procedure.
The Court stated that, “the appropriate course that ought to have been followed by the High Court is to remit the matter to the appellant herein by directing them to provide opportunity to the respondent No.3 to file necessary documents in support of the completion certificate dated 24.12.2008 issued by the Architect so as to enable the appellant to make a factual determination and to arrive at an appropriate conclusion afresh by taking into consideration all aspects of the matter.”
The Court also stated that, “pending such reconsideration an avenue is to be created for the respondent No.4 to issue the occupancy certificate so as to enable the respondents No.1 and 2 to occupy and at the same time the interest of the appellant is also required to be secured.”
The Court further stated that, “if the appellant is satisfied that the construction is completed in terms of the extension granted and if it is found they are not liable for the levy of additional lease premium the amount of Rs.3,50,00,000/- (Rupees Three Crores Fifty Lakhs) as indicated above shall be returned to the parties who deposits the same.”
There were no dissenting opinions in this case.
Key Takeaways
- Statutory bodies must follow due process when demanding additional lease premium.
- The rights of bonafide purchasers are to be considered, even if they are not party to the original contract.
- High Courts should generally remit matters for fresh consideration when there are procedural lapses, rather than making final factual determinations.
- The Supreme Court can exercise discretionary jurisdiction to balance the equities between the parties.
Directions
The Supreme Court gave the following directions:
- Respondents No. 1 to 3 shall deposit Rs. 3,50,00,000 with CIDCO towards provisional additional lease premium.
- CIDCO shall issue a provisional ‘No Dues Certificate’ to enable respondent No. 3 to secure the occupancy certificate.
- Respondent No. 4 shall process the application for the occupancy certificate.
- CIDCO shall provide an opportunity to respondent No. 3 to submit documents to establish the completion of construction before December 31, 2008.
- CIDCO shall pass fresh orders regarding the additional lease premium.
- If it is found that the construction was completed on time, the deposited amount shall be returned.
- If the additional lease premium is found to be due, CIDCO can recover it from respondent No. 3, and there will be a charge over the property purchased by respondents No. 1 and 2.
Development of Law
The ratio decidendi of the case is that when a statutory body seeks to recover additional lease premium, it must follow the due procedure and consider the factual aspects of the matter. Further, the rights of bonafide purchasers must also be considered. The Supreme Court has clarified that the High Court should have remitted the matter for fresh consideration rather than making a final factual determination. There is no change in the previous position of law, but the judgment clarifies the procedure to be followed in such cases.
Conclusion
The Supreme Court partly allowed the appeal, setting aside the High Court’s order to the extent that it directed the issuance of a ‘No Dues Certificate’. The Court remitted the matter to CIDCO for fresh consideration, directing them to follow due procedure and consider the factual aspects of the case. The Court also made interim arrangements to protect the interests of all parties involved, directing the deposit of a provisional amount and the issuance of a provisional ‘No Dues Certificate’ to enable the issuance of the occupancy certificate.