Supreme Court Upholds Housing Board’s Allotment Price After Acceptance: Bihar State Housing Board vs. Radha Ballabh Health Care (2019)

Date of the Judgment: September 13, 2019

Citation: (2019) INSC 770

Judges: L. Nageswara Rao, J. and Hemant Gupta, J.

Can a party renege on an agreed price for a property allotment after having accepted it multiple times and entering into a formal agreement? The Supreme Court of India recently addressed this question in a case involving the Bihar State Housing Board and a private healthcare institute. The core issue revolved around whether the Housing Board could charge a market price for an alternative plot of land, or if it was bound by the original advertised price, and whether the allottee can dispute the price after accepting it multiple times. The bench comprised Justices L. Nageswara Rao and Hemant Gupta, with the majority opinion authored by Justice Hemant Gupta.

Case Background

The Bihar State Housing Board (the appellant) published an advertisement on May 10, 2008, inviting applications for a plot of land for a health center in Lohia Nagar, Patna. The respondent, Radha Ballabh Health Care and Research Institute (P) Ltd., applied for the plot and submitted the earnest money. The advertisement stated that if there were multiple applicants, the allotment would be done by a draw of lots. It also mentioned that the Chairman of the Housing Board had the power to cancel the allotment without assigning any reason. The respondent was the sole applicant, but was not allotted the plot.

The respondent then filed a writ petition in 2009, challenging the non-allotment. The High Court directed the Housing Board to decide on the application. Subsequently, the Housing Board rejected the application. The respondent then filed another writ petition, and during its pendency, the Housing Board offered two alternative plots to the respondent. The respondent accepted the alternative plots, but sought a proportionate reduction in price. The Housing Board then decided to allot the plots based on the Swiss Challenge Method. The High Court quashed the decision to use the Swiss Challenge Method and directed the Housing Board to allot the plots to the respondent at a proportionate cost reduction.

The High Court later modified its order to state that if the allotment letter was issued after May 31, 2008, the price would be updated as per the date of allotment. The Housing Board then demanded an updated price, which the respondent initially protested, but eventually accepted under protest, including a payment schedule. Despite accepting the payment schedule, the respondent filed another writ petition challenging the price.

Timeline:

Course of Proceedings

The respondent initially filed a writ petition in the High Court challenging the Housing Board’s decision not to allot the original plot. The High Court directed the Housing Board to reconsider the application. After the Housing Board rejected the application, the respondent filed another writ petition. The High Court then directed the Housing Board to allot alternative plots at a proportionate cost reduction. The Housing Board was directed to issue an allotment letter in terms of the advertisement, but with respect to the alternative plots. This order was later modified to include that the price would be updated as of the date of allotment if it was after May 31, 2008. The respondent then challenged the updated price. The learned Single Judge allowed the writ petition, stating that the Board had acted arbitrarily in fixing the price. The Division Bench of the High Court dismissed the Letters Patent Appeal, affirming the single judge’s order.

Legal Framework

The judgment primarily revolves around the principles of contract law and the conduct of state instrumentalities in property allotment. The Supreme Court examined the following:

• Article 14 of the Constitution of India: This article ensures equality before the law and prohibits arbitrary actions by the state. The court emphasized that state instrumentalities must act fairly and transparently, especially when dealing with public property.
• The court referred to the principle that the disposal of public property by the State or its instrumentalities partakes the character of a trust.

Arguments

Appellant (Bihar State Housing Board) Arguments:

• The Housing Board argued that its decision to fix the price was rational and based on earlier board decisions.
• It contended that the respondent, having accepted the offer of allotment and made initial payments, was estopped from disputing the price.
• The Housing Board contended that the price was fixed based on the market value determined for the Financial Year 2013-2014.

Respondent (Radha Ballabh Health Care) Arguments:

• The respondent argued that the original advertisement contemplated charging an updated cost/price, not the market price.
• It contended that the Housing Board could not charge the market price of the plot.
• The respondent argued that the decision of June 13, 2013, was regarding the sale of a plot by the allottee to a third person, not for initial allotment.
• The respondent contended that the office order of March 2, 2001, dealt with the fixation of reserve price in the event of a decision of the Board to auction the plot.

Innovative Argument: The respondent’s argument that the term “updated price” in the advertisement should not be equated with “market price” was a key point of contention. This argument sought to differentiate between the cost of the plot as per the advertisement and the market value determined later.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues:

1. Whether the appellant could allot plots without advertisement.
2. Whether the Housing Board was entitled to charge the market price for the alternative plots.
3. Whether the respondent could dispute the allotment price after accepting it multiple times and entering into a formal agreement.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Court relied on Akhil Bhartiya Upbhokta Congress v. State of Madhya Pradesh & Ors. (2011) 5 SCC 29 to emphasize that allotment of land by the State or its instrumentalities should be done through invitation or advertisement and not on the basis of individual applications.
• The Court relied on Institute of Law, Chandigarh & Ors. v. Neeraj Sharma & Ors. (2015) 1 SCC 720 to emphasize that allotment of land without public notice or transparent policy is not permissible.
• The Court relied on Meerut Development Authority v. Association of Management Studies & Anr. (2009) 6 SCC 171 to emphasize that tenders are offers and that the disposal of public property must be fair and transparent.
• The Court relied on Uttar Pradesh Housing and Development Board v. Ramesh Chandra Agarwal (2019) 6 SCC 554 to emphasize that mere registration does not confer a right to allotment and that there is no contractual entitlement for allotment at a specified price.
• The Court relied on Style (Dress Land) v. Union Territory, Chandigarh & Anr. (1999) 7 SCC 89 to emphasize the Housing Board’s entitlement to allotment price along with interest on delayed payments.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle of estoppel, the sanctity of contracts, and the need for transparency in public dealings. The Court emphasized that the respondent, having accepted the price on multiple occasions and entered into a formal agreement, could not later dispute it. The Court also noted that the allotment of alternative plots without advertisement was not proper, but since the hospital was already operational, it did not cancel the allotment.

The Court’s reasoning was based on the legal principle of estoppel, which prevents a party from going back on their word, especially after the other party has acted on it. The Court also emphasized the importance of upholding contracts and ensuring that state instrumentalities act fairly and transparently. The fact that the hospital was already operational also weighed in the Court’s decision not to cancel the allotment, even though it was made without proper advertisement.

The Supreme Court’s reasoning was based on the principle of estoppel, which prevents a party from going back on their word, especially after the other party has acted on it. The court also emphasized the importance of upholding contracts and ensuring that state instrumentalities act fairly and transparently. The fact that the hospital was already operational also weighed in the court’s decision not to cancel the allotment, even though it was made without proper advertisement.

The court quoted the following from the judgment:

• “The respondent is estopped to dispute the allotment price in these circumstances.”
• “The appellant as a State is required to act fairly in fixation of price for allotment of a plot.”
• “The action of the respondent to dispute the allotment price after accepting the price is neither fair nor reasonable and cannot be accepted.”

The Court also considered the fact that the respondent had already constructed and was operating a hospital on the allotted land. This practical consideration influenced the Court’s decision not to cancel the allotment despite the procedural irregularities.

Key Takeaways

• Estoppel: A party cannot dispute an agreed price after accepting it multiple times and entering into a formal agreement.
• Transparency: State instrumentalities must act fairly and transparently in the allotment of public property.
• Contractual Obligations: Once a contract is formed, parties are bound by its terms.
• Public Interest: While transparency is crucial, the Court considered the fact that the hospital was operational and did not cancel the allotment.

Potential Future Impact: This judgment reinforces the principle of estoppel in contractual matters involving state entities. It also highlights the need for state instrumentalities to follow transparent procedures in the allotment of public property. However, it also acknowledges that practical considerations, such as the operational status of an entity, can influence judicial decisions.

Directions

The Supreme Court directed that the interest for the period from the date of filing of the writ petition before the High Court till the date of the order of the Supreme Court shall not be charged from the respondent, provided the respondent pays the entire balance sale consideration within six months.

Development of Law

The ratio decidendi of this case is that a party is estopped from disputing an allotment price after accepting it multiple times and entering into a formal agreement. This case reinforces the principle of estoppel in contractual matters involving state entities and emphasizes the need for transparency in public dealings. There is no change in the previous position of law, but the case clarifies the application of the principle of estoppel in the context of state instrumentalities.

Conclusion

The Supreme Court set aside the High Court’s order, holding that the respondent was bound by the agreed price for the plot. The Court emphasized that the respondent, having accepted the price on multiple occasions and entered into a formal agreement, could not later dispute it. While the Court acknowledged that the allotment of alternative plots without advertisement was not proper, it did not cancel the allotment due to the fact that the hospital was already operational. The Court also directed that the interest for the period from the date of filing of the writ petition before the High Court till the date of the order of the Supreme Court shall not be charged from the respondent, provided the respondent pays the entire balance sale consideration within six months.