Supreme Court sets aside lease renewal by Ujjain Development Authority: Ajar Enterprises vs. Satyanarayan Somani (2017) INSC 759

Can a public authority arbitrarily renew a lease of public land, especially when the original purpose of the lease is not being fulfilled? The Supreme Court of India addressed this critical question in a case involving the Ujjain Development Authority (UDA) and Ajar Enterprises Private Limited. The court ultimately set aside the lease renewal, emphasizing the importance of public interest and transparency in the disposal of public resources. This judgment clarifies the obligations of public bodies when dealing with lease renewals and the need to protect public assets.

Citation: (2017) INSC 759

Judges: The judgment was delivered by a bench comprising of Chief Justice Jagdish Singh Khehar and Justice Dr. D.Y. Chandrachud, with Justice Chandrachud authoring the opinion.

Case Background

The case revolves around a lease of land granted by the Ujjain Development Authority (UDA) to IISCO Stanton Pipe & Foundry Company Ltd (IISCO) in 1985. The lease was for 30 years, with a clause for renewal for two further periods of 30 years each, subject to a 50% increase in lease rent. IISCO was to develop a residential colony on the land. However, IISCO faced financial difficulties and was ordered to be wound up. The Official Liquidator took over its assets, including the leased land.

The Official Liquidator then sold the assets of IISCO, including the leasehold rights, on an “as is where is” basis. Ajar Enterprises Private Limited (Ajar) was nominated as the entity to whom the assets were transferred. UDA had attempted to cancel the lease due to non-payment of rent and failure to construct on a portion of the land. The Calcutta High Court, however, allowed the sale of the leasehold rights for the remaining term of the lease.

After the transfer, Ajar sought a renewal of the lease, which UDA granted for a further 30 years. Subsequently, UDA also allowed the conversion of the leasehold land to freehold. This renewal and conversion were challenged in a public interest litigation (PIL), leading to the present case before the Supreme Court. The High Court had set aside the renewal of the lease and directed that the land be put to public auction.

Timeline

Course of Proceedings

Initially, the Calcutta High Court dealt with the sale of IISCO’s assets during its liquidation. UDA’s objections to the transfer of leasehold rights were dismissed by a Single Judge, which was upheld by a Division Bench. The Supreme Court also dismissed a Special Leave Petition filed by UDA on the grounds of delay.

Subsequently, the Madhya Pradesh High Court entertained a public interest litigation (PIL) challenging the renewal of the lease and the conversion to freehold. The High Court set aside the lease renewal, directing UDA to conduct a fresh auction of the land. This decision was then appealed to the Supreme Court.

Legal Framework

The Supreme Court considered the following legal provisions:

• Section 181 of the Madhya Pradesh Land Revenue Code, 1959: This section defines a government lessee as someone who holds land from the State Government but is not a bhumiswami (landowner).
  “Every person who holds land from the State Government or to whom a right to occupy land is granted by the State Government or Collector and who is not entitled to hold land as a bhumiswami shall be called a Government lessee in respect of such land.”
• Section 182 of the Madhya Pradesh Land Revenue Code, 1959: This section outlines the rights and liabilities of a government lessee, stating that they hold land according to the terms of the grant. It also specifies the grounds for ejectment.
  “A Government lessee shall, subject to any express provisions in this Code, hold his land in accordance with the terms and conditions of the grant, which shall be deemed to be a grant within the meaning of the Government Grants Act, 1895 (XV of 1895);”
• Section 181-A of the Madhya Pradesh Land Revenue Code, 1959: This section empowers the State Government to convert leasehold rights into freehold rights.
  “Notwithstanding anything contained in Chapter VI and this Chapter of the Code, the State Government or any officer authorised by the State Government may convert various leases granted for residential and commercial purposes in urban areas into free hold in such manner as may be prescribed.”
• Madhya Pradesh Nagar Tatha Gram Nivesh Vikasit Bhoomiyo, Griho, Bhavano Tatha Anya Sanrachanao Ka Vyayan Niyam, 1975: These rules govern the transfer of government land. Rule 24 states that transfer of land shall be by lease for 30 or 99 years with the right of renewal by the lessor. Rule 25 specifies that leases for 30 years can be renewed for two further periods of 30 years each, subject to an increase in ground rent not exceeding 50%.
• Madhya Pradesh Grant of Freehold Rights in respect of Land on Lease situated in Urban Area Rules 2010: These rules provide the procedure for converting leasehold land to freehold.

The court also noted that the original lease deed was deemed to be a grant under the Government Grants Act, 1895.

Arguments

Arguments by Ajar Enterprises and Third-Party Purchasers:

• Ajar argued that it had a legitimate expectation to renew the lease based on the original lease deed and the statutory provisions.
• They contended that the lease renewal and conversion to freehold were in accordance with statutory rules and registered instruments.
• They argued that the High Court should have considered the rights of third-party purchasers who had bought plots from Ajar.
• Ajar relied on the fact that they had obtained the leasehold rights through a court-sanctioned sale.
• They argued that the decision of the Constitution Bench of the Supreme Court in re: Natural Resources Allocation indicates that a public auction is not a mandatory requirement in all circumstances.

Arguments by Ujjain Development Authority (UDA):

• UDA argued that it was bound to renew the lease as per the terms of the original lease deed and the statutory rules.
• They stated that they had no option but to transfer the lease after losing in the Calcutta High Court and the Supreme Court.
• UDA maintained that they had charged the full market value to IISCO when the land was initially leased.
• They claimed that the lease was renewed in accordance with the terms of the deed and the statutory rules.

Arguments by the Original Petitioners (Satyanarayan Somani and Ors.):

• The petitioners argued that the land was originally allotted to IISCO on concessional terms and that UDA should have conducted a public auction to realize the best price.
• They contended that Ajar was not entitled to a renewal of the lease, as the original lease was for 30 years, and Ajar only held the rights for the remaining seven years.
• They argued that UDA had acted against public interest by renewing the lease to a private developer for a nominal price.
• They also raised concerns about the hurried conversion of the land to freehold and alleged corruption.
• They argued that the third-party purchasers cannot obtain a better title than Ajar.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the UDA was justified in renewing the lease in favor of Ajar.
2. Whether the conversion of the leasehold land to freehold was valid.
3. Whether the High Court was correct in directing a public auction of the land.
4. What are the rights of the third party purchasers in the present case.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Re: Natural Resources Allocation: This case established that auction is not the only permissible method for the disposal of natural resources, but the method chosen must subserve public interest. (Constitution Bench, Supreme Court of India)

Legal Provisions:

• Section 181 of the Madhya Pradesh Land Revenue Code, 1959: Defined government lessees.
• Section 182 of the Madhya Pradesh Land Revenue Code, 1959: Outlined the rights and liabilities of government lessees.
• Section 181-A of the Madhya Pradesh Land Revenue Code, 1959: Provided for the conversion of leasehold rights into freehold rights.
• Rules 24 and 25 of the Madhya Pradesh Nagar Tatha Gram Nivesh Vikasit Bhoomiyo, Griho, Bhavano Tatha Anya Sanrachanao Ka Vyayan Niyam, 1975: Governed the transfer of land by lease and renewal.
• Madhya Pradesh Grant of Freehold Rights in respect of Land on Lease situated in Urban Area Rules 2010: Provided the procedure for conversion of leasehold land to freehold.

Authorities Considered by the Court

Judgment

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

How each authority was viewed by the Court?

The Supreme Court relied on Re: Natural Resources Allocation* to clarify that while auction is not the only method for disposing of public resources, any other method must serve public interest. The court used the Madhya Pradesh Land Revenue Code, 1959* and the Madhya Pradesh Nagar Tatha Gram Nivesh Vikasit Bhoomiyo, Griho, Bhavano Tatha Anya Sanrachanao Ka Vyayan Niyam, 1975* to interpret the terms of the lease and the rules governing lease renewals. The court also used the Madhya Pradesh Grant of Freehold Rights in respect of Land on Lease situated in Urban Area Rules 2010* to analyze the conversion of the land to freehold.

What weighed in the mind of the Court?

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

• Public Interest: The court emphasized that public bodies must act in the public interest and not confer undue benefits on private parties.
• Transparency: The court stressed the need for transparency in the disposal of public resources, including land.
• Original Purpose of the Lease: The court noted that the original lease to IISCO was for a specific purpose (residential colony) which was not being fulfilled by Ajar.
• Misinterpretation of Calcutta High Court Order: The court found that UDA had misinterpreted the Calcutta High Court’s order, which did not mandate a lease renewal.
• Lack of Bona Fides: The court noted that Ajar continued to execute sale deeds during the pendency of the writ proceedings, showing a lack of good faith.

Sentiment Analysis Table

Fact:Law Ratio Table

The court’s reasoning was based on a combination of factual analysis and legal interpretation. The factual aspects, such as the original purpose of the lease, the actions of UDA, and the conduct of Ajar, played a significant role in the court’s decision.

Logical Reasoning

The court considered alternative interpretations, including the argument that UDA was bound to renew the lease. However, it rejected this interpretation, emphasizing that UDA had discretion and failed to exercise it in a manner consistent with public interest.

The court’s decision was based on the principle that public bodies must act in the public interest and not confer undue benefits on private parties. The court also emphasized the need for transparency in the disposal of public resources.

The majority opinion was delivered by Justice Dr. D.Y. Chandrachud, with Chief Justice Jagdish Singh Khehar concurring. There were no dissenting opinions.

The Supreme Court quoted from the judgment:

• “The clause for renewal provided that the lease could be renewed, not that it must or shall be renewed.”
• “UDA was complicit in renewing the lease and granting an undeserved windfall on a commercial developer.”
• “Fraud, it is well-settled unravels everything.”

Key Takeaways

• Public authorities must act in the public interest when dealing with public resources.
• Lease renewal clauses do not grant an absolute right of renewal; public bodies have discretion.
• Public bodies must ensure transparency and realize the best possible value for public land.
• Third-party rights created during the pendency of litigation are subject to the outcome of the litigation.
• The sanctity of contracts cannot override the need to protect public interest.

Directions

The Supreme Court issued the following directions:

• The rights of third-party purchasers who had registered sale deeds prior to the High Court judgment were protected.
• UDA was directed to verify the correctness of the statement submitted by Ajar regarding the registered sale deeds.
• Ajar was directed to refund the consideration paid by other third parties, along with interest at 9% per annum.

Development of Law

The ratio decidendi of this case is that public authorities must act in the public interest and ensure transparency when dealing with public resources. The court clarified that lease renewal clauses do not grant an absolute right of renewal and that public bodies have discretion which they must exercise fairly. This judgment reinforces the principle that public bodies are accountable for their actions and cannot confer undue benefits on private parties at the expense of public interest.

Conclusion

The Supreme Court’s judgment in Ajar Enterprises vs. Satyanarayan Somani reinforces the principle that public authorities must act in the public interest and ensure transparency when dealing with public resources. The court set aside the lease renewal and conversion to freehold, emphasizing that public bodies have a duty to protect public assets and cannot confer undue benefits on private parties. The judgment also highlights the importance of considering the original purpose of a lease and the need for transparency in the disposal of public land.