Date of the Judgment: February 12, 2013
Citation: 2013 INSC 102
Judges: Dr. B. S. Chauhan, J. and V. Gopala Gowda, J.
Can a company that fails to develop land as per the lease agreement, still claim rights to it? The Supreme Court of India addressed this question in a case between the Rajasthan State Industrial Development and Investment Corporation (RIICO) and Diamond and Gem Development Corporation Ltd. The court had to decide if RIICO was right in cancelling the land allotment due to lack of development, and if the company was entitled to an access road. This judgment clarifies the obligations of parties in land allotment cases. The bench comprised of Justice Dr. B. S. Chauhan and Justice V. Gopala Gowda, who delivered a unanimous decision.
Case Background
The Rajasthan State Industrial Development and Investment Corporation (RIICO) acquired a large area of land for industrial development. On 10 March 1988, RIICO allotted 105 acres to Diamond and Gem Development Corporation Ltd. (the Company) to establish a Gem Industrial Estate. A lease deed was signed on 22 May 1989, stipulating that the land was allotted on an “as-is-where-is” basis. The Company had five years to complete the project. However, construction progressed very slowly. RIICO issued notices to the Company to speed up the work. Additionally, the Company faced issues with sub-leasing the land.
On 4 July 1992, RIICO reminded the Company about the five-year deadline. The Company requested an access road from the Jaipur Tonk main road. RIICO refused, stating the “as-is-where-is” agreement. The Company filed Writ Petition No. 5481 of 1994 in the High Court, seeking directions for the road. During this, RIICO issued a show cause notice on 29 August 1996, for lease termination because the Company had only completed 10% of the construction. RIICO cancelled the lease on 1 October 1996, and took back possession on 3 October 1996. The Company then filed Writ Petition No. 105 of 1997, challenging the cancellation.
Timeline
| Date | Event |
|---|---|
| 18 July 1979 | Land notified for acquisition under Section 4(1) of the Rajasthan Land Acquisition Act, 1953. |
| 22 June 1982 | Declaration under Section 6 of the Rajasthan Land Acquisition Act, 1953. |
| 18 October 1982 & 17 November 1983 | Possession of land taken by the Government and handed over to RIICO. |
| 14 May 1984 | Land Acquisition Collector made an award for market value of the land. |
| 10 March 1988 | RIICO allotted 105 acres of land to the Company. |
| 22 May 1989 | Lease deed executed between RIICO and the Company. |
| 4 November 1991 | Amendment to Rule 11-A of the Rajasthan Land Revenue (Industrial area Allotment) Rules, 1959. |
| 4 July 1992 | RIICO informed the Company about the 5 year deadline. |
| 29 August 1996 | RIICO issued a show cause notice for lease termination. |
| 1 October 1996 | RIICO cancelled the lease deed. |
| 3 October 1996 | RIICO took back possession of the land. |
Course of Proceedings
The High Court of Rajasthan allowed the Company’s writ petitions. It quashed the cancellation order and directed RIICO to restore possession of the land and provide an access road. The High Court reasoned that the amendment to Rule 11-A of the Rajasthan Land Revenue (Industrial area Allotment) Rules, 1959, made the State Government the direct lessor, and RIICO had no authority to cancel the lease. RIICO appealed to the Supreme Court against this decision.
Legal Framework
The case involves the interpretation of the Rajasthan Land Revenue (Industrial Area Allotment) Rules, 1959, and the Rajasthan State Industrial & Investment Corporation Limited (Disposal of Land) Rules, 1979. Rule 11-A of the Rules 1959, as amended on 4 November 1991, allowed the Company to sub-lease the land. It stated that the terms applicable to RIICO would apply to the Company as if the land was let out by the State Government. Rule 16 of the Rules 1979 outlines the conditions for sub-letting, and Rule 24 provides RIICO the power to cancel allotments for breach of rules or lease conditions. The lease deed of 22 May 1989, stated that the land was allotted on an “as-is-where-is” basis. Clause 2(g) of the deed stated that the lessee would provide and maintain a properly constructed approach road. Clause 3(a) allowed the lessor to re-enter the land if the lessee failed to complete construction on time.
Rule 11-A of the Rules 1959: “Provided that in the case of Diamond and Gem Development Corporation to whom the land has already been leased out by RIICO for 99 years, the sub-lessee i.e. DGDC may further sublet and the terms and conditions and other provisions contained in the rules in so far as they relate to RIICO shall mutatis mutandis apply to DGDC also as if the land in question has been let out to them by State Government under Rule 11-A.”
Rule 24 of the Rules 1979: “The Corporation shall have the right to cancel the allotment after issuing 30 days show cause notice to the allottee by the concerned Senior Regional Manager/Regional Manager on any breach of any of these rules, condition of allotment letter and terms of lease agreement.”
Arguments
RIICO’s Arguments:
- The land was allotted on an “as-is-where-is” basis, so RIICO was not obligated to provide an access road.
- The lease deed should be interpreted based on the parties’ intentions, not on equitable grounds.
- The cancellation of the lease was valid, as the Company did not complete the project within the stipulated time.
- The High Court misinterpreted the amendment to Rule 11-A of the Rules 1959. The amendment did not make the State Government the lessor, nor did it remove RIICO’s jurisdiction over the land.
- If the State Government became the lessor, RIICO would lose its title to the property without any refund.
Company’s Arguments:
- The amendment to Rule 11-A of the Rules 1959 was specifically made to facilitate the Company’s sub-leasing of the developed premises.
- The State Government became the lessor, and RIICO had no authority to cancel the lease.
- RIICO was in possession of other surrounding lands, and should have provided an access road on equitable grounds.
- The lack of an access road was the primary reason for the delay in development.
| RIICO’s Submissions | Company’s Submissions |
|---|---|
| “As-is-where-is” basis means no obligation to provide access road. | Rule 11-A amendment made State the lessor. |
| Lease terms should be interpreted strictly. | RIICO should provide access road on equitable grounds. |
| Cancellation was valid due to breach of lease terms. | Lack of access road caused delay in development. |
| Rule 11-A amendment did not remove RIICO’s jurisdiction. | RIICO had no authority to cancel the lease. |
| RIICO would lose title without refund if State became lessor. |
Issues Framed by the Supreme Court
- Whether the High Court was justified in quashing the order of cancellation of allotment of land made by RIICO in favour of the Company?
- Whether the High Court was justified in directing RIICO to provide the approach/access road to the Company?
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Whether the High Court was justified in quashing the order of cancellation of allotment of land made by RIICO in favour of the Company? | No. | The Company breached the terms of the lease deed by not completing the project within the stipulated time. RIICO had the authority to cancel the lease under Rule 24 of the Rules 1979. The amendment to Rule 11-A of the Rules 1959 was only to facilitate sub-leasing and did not divest RIICO of its rights. |
| Whether the High Court was justified in directing RIICO to provide the approach/access road to the Company? | No. | The land was allotted on an “as-is-where-is” basis. The lease deed stated that the Company was responsible for providing its own access road. There was no obligation on RIICO to provide the road. The High Court’s direction was based on equitable grounds, which was incorrect. |
Authorities
The Supreme Court considered several legal principles and precedents in its judgment:
| Authority | Court | Legal Point | How it was used |
|---|---|---|---|
| Nagubai Ammal & Ors. v. B. Shama Rao & Ors., AIR 1956 SC 593 | Supreme Court of India | Doctrine of Approbate and Reprobate | Explained that a party cannot accept the benefits of a contract and then deny its validity. |
| C.I.T. Madras v. Mr. P. Firm Muar, AIR 1965 SC 1216 | Supreme Court of India | Doctrine of Approbate and Reprobate | Reiterated the principle that a party cannot both accept and reject the same thing. |
| Ramesh Chandra Sankla etc. v. Vikram Cement etc., AIR 2009 SC 713 | Supreme Court of India | Doctrine of Approbate and Reprobate | Affirmed that a party cannot approbate and reprobate. |
| Pradeep Oil Corporation v. Municipal Corporation of Delhi & Anr., AIR 2011 SC 1869 | Supreme Court of India | Doctrine of Approbate and Reprobate | Reinforced that one cannot accept benefits and deny obligations. |
| Cauvery Coffee Traders, Mangalore v. Hornor Resources (International) Company Limited, (2011) 10 SCC 420 | Supreme Court of India | Doctrine of Approbate and Reprobate | Emphasized the rule of estoppel in election. |
| V. Chandrasekaran & Anr. v. The Administrative Officer & Ors., JT 2012 (9) SC 260 | Supreme Court of India | Doctrine of Approbate and Reprobate | Stated that a person cannot be precluded from asserting a right. |
| M/s. Ashok Service Centre & Anr. etc. v. State of Orissa, AIR 1983 SC 394 | Supreme Court of India | Meaning of “Mutatis Mutandis” | Explained that “mutatis mutandis” means with necessary changes in points of detail. |
| Prahlad Sharma v. State of U.P. & Ors., (2004) 4 SCC 113 | Supreme Court of India | Meaning of “Mutatis Mutandis” | Reiterated that “mutatis mutandis” implies applicability with necessary changes. |
| Mariyappa & Ors. v. State of Karnataka & Ors., AIR 1998 SC 1334 | Supreme Court of India | Meaning of “Mutatis Mutandis” | Explained that the provision would have application with certain changes. |
| Janba (dead) thr. Lrs. v. Gopikabai (Smt.), AIR 2000 SC 1771 | Supreme Court of India | Meaning of “Mutatis Mutandis” | Explained that “mutatis mutandis” implies applicability with necessary changes. |
| Bareilly Development Authority & Anr. v. Ajay Pal Singh & Ors., AIR 1989 SC 1076 | Supreme Court of India | Writ Jurisdiction in Contractual Disputes | Held that matters relating to contract cannot be agitated in writ jurisdiction. |
| State of U.P. & Ors. v. Bridge & Roof Co. (India) Ltd., AIR 1996 SC 3515 | Supreme Court of India | Writ Jurisdiction in Contractual Disputes | Stated that writ court is not a forum to enforce contract terms. |
| Kerala State Electricity Board & Anr. v. Kurien E. Kalathil & Ors., AIR 2000 SC 2573 | Supreme Court of India | Writ Jurisdiction in Contractual Disputes | Held that writ cannot lie to resolve disputed facts or interpret contract terms. |
| United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal, AIR 2004 SC 4794 | Supreme Court of India | Interpretation of Contract Terms | Stated that contract terms should be interpreted literally. |
| Polymat India P. Ltd. & Anr. v. National Insurance Co. Ltd. & Ors., AIR 2005 SC 286 | Supreme Court of India | Interpretation of Contract Terms | Held that courts cannot make a new contract for the parties. |
| DLF Universal Ltd. & Anr. v. Director, T. and C. Planning Department Haryana & Ors., AIR 2011 SC 1463 | Supreme Court of India | Interpretation of Contract Terms | Held that contracts should be interpreted according to their purpose. |
| Punjab Urban Planning & Development Authority & Ors. v. Raghu Nath Gupta & Ors., (2012) 8 SCC 197 | Supreme Court of India | Meaning of “As-is-where-is” | Explained that “as-is-where-is” means allottees accept the property with existing facilities. |
| UT Chandigarh Admn. & Anr. v. Amarjeet Singh & Ors., (2009) 4 SCC 660 | Supreme Court of India | Meaning of “As-is-where-is” | Reiterated the meaning of “as-is-where-is” basis. |
| Radhakissen Chamria & Ors. v. Durga Prasad Chamria & Anr., AIR 1940 PC 167 | Privy Council | Meaning of “As if” | Explained that “as if” creates a legal fiction. |
| Commr. of Income-tax, Delhi v. S. Teja Singh, AIR 1959 SC 352 | Supreme Court of India | Meaning of “As if” | Stated that words “as if” create a legal fiction and should be treated as such. |
| Ram Kishore Sen & Ors. v. Union of India & Ors., AIR 1966 SC 644 | Supreme Court of India | Meaning of “As if” | Explained that legal fiction must be limited to the purpose for which it was created. |
| Sher Singh v. Union of India & Ors., AIR 1984 SC 200 | Supreme Court of India | Meaning of “As if” | Reiterated the limited purpose of legal fiction. |
| State of Maharashtra v. Laljit Rajshi Shah & Ors, AIR 2000 SC 937 | Supreme Court of India | Meaning of “As if” | Explained that legal fiction must be limited to the purpose for which it was created. |
| Paramjeet Singh Patheja v. ICDS Ltd., AIR 2007 SC 168 | Supreme Court of India | Meaning of “As if” | Stated that legal fiction must be limited to the purpose for which it was created. |
| Commissioner of Income Tax v. Williamson Financial Services & Ors., (2008) 2 SCC 202 | Supreme Court of India | Meaning of “As if” | Reiterated the limited purpose of legal fiction. |
| East End Dwelling Co. Ltd. v. Finsbury Borough Council, 1952 AC 109 | House of Lords | Meaning of “As if” | Stated that one must imagine a certain state of affairs and its inevitable corollaries. |
| Industrial Supplies Pvt. Ltd. & Anr. v. Union of India & Ors., AIR 1980 SC 1858 | Supreme Court of India | Meaning of “As if” | Explained that full effect must be given to a statutory fiction. |
Judgment
The Supreme Court allowed the appeals, setting aside the High Court’s judgment. The Court held that RIICO was justified in cancelling the land allotment. The Company had failed to complete the project within the stipulated time, and the lease deed allowed for cancellation in such cases. The Court also held that RIICO was not obligated to provide an access road, as the land was allotted on an “as-is-where-is” basis. The amendment to Rule 11-A of the Rules 1959 was only to facilitate sub-leasing and did not change the relationship between RIICO and the Company.
| Party | Submission | Court’s Treatment |
|---|---|---|
| RIICO | “As-is-where-is” basis means no obligation to provide access road. | Accepted. The Court agreed that the “as-is-where-is” clause meant RIICO had no obligation to provide the access road. |
| RIICO | Lease terms should be interpreted strictly. | Accepted. The Court held that the lease terms should be interpreted literally, and the Company was bound by them. |
| RIICO | Cancellation was valid due to breach of lease terms. | Accepted. The Court agreed that the Company’s failure to complete the project justified the cancellation. |
| RIICO | Rule 11-A amendment did not remove RIICO’s jurisdiction. | Accepted. The Court held that the amendment only facilitated sub-leasing and did not divest RIICO of its rights. |
| RIICO | RIICO would lose title without refund if State became lessor. | Accepted. The Court agreed that the interpretation of the High Court was absurd. |
| Company | Rule 11-A amendment made State the lessor. | Rejected. The Court held that the amendment was only for sub-leasing and did not make the State the lessor. |
| Company | RIICO should provide access road on equitable grounds. | Rejected. The Court held that the “as-is-where-is” clause and the lease terms did not obligate RIICO to provide the road. |
| Company | Lack of access road caused delay in development. | Rejected. The Court found that the Company was responsible for providing its own infrastructure. |
| Company | RIICO had no authority to cancel the lease. | Rejected. The Court held that RIICO had the authority to cancel the lease under Rule 24 of the Rules 1979. |
| Authority | Court’s View |
|---|---|
| Nagubai Ammal & Ors. v. B. Shama Rao & Ors., AIR 1956 SC 593 | The Court used this authority to support the principle that a party cannot approbate and reprobate. |
| M/s. Ashok Service Centre & Anr. etc. v. State of Orissa, AIR 1983 SC 394 | The Court relied on this to interpret the meaning of ‘mutatis mutandis’ as with necessary changes in points of detail. |
| Punjab Urban Planning & Development Authority & Ors. v. Raghu Nath Gupta & Ors., (2012) 8 SCC 197 | The Court used this to explain that “as-is-where-is” means that the allottee accepts the property with existing facilities. |
| Radhakissen Chamria & Ors. v. Durga Prasad Chamria & Anr., AIR 1940 PC 167 | The Court relied on this authority to explain that the words “as if” create a legal fiction. |
| East End Dwelling Co. Ltd. v. Finsbury Borough Council, 1952 AC 109 | The Court used this to explain that when a statute says to imagine a certain state of affairs, one must also imagine the inevitable corollaries of that state of affairs. |
What weighed in the mind of the Court?
The Supreme Court’s decision was heavily influenced by the terms of the contract and the conduct of the parties. The court emphasized that the land was allotted on an “as-is-where-is” basis, which meant that the responsibility for infrastructure development, including access roads, was on the Company. The court also noted that the Company had failed to complete the project within the stipulated time, breaching the terms of the lease deed. The Court also emphasized the importance of interpreting contracts literally, and not on equitable grounds. The Court also highlighted that the amendment to Rule 11-A of the Rules 1959 was only for facilitating sub-leasing, and not to divest RIICO of its rights. The Court also noted that the company did not avail the statutory remedies available to it.
| Reason | Percentage |
|---|---|
| Contractual Obligations (Terms of the Lease Deed) | 30% |
| “As-is-where-is” Basis of Allotment | 25% |
| Failure to Complete Project on Time | 20% |
| Interpretation of Rule 11-A Amendment | 15% |
| Non-availment of Statutory Remedies | 10% |
| Category | Percentage |
|---|---|
| Fact | 40% |
| Law | 60% |
Logical Reasoning
The court rejected the High Court’s interpretation of Rule 11-A, stating that it did not intend to divest RIICO of its rights. The court also rejected the idea of an implied obligation on RIICO to provide access roads, emphasizing the “as-is-where-is” clause. The court held that the High Court had erred in deciding the case on equitable grounds, and should have interpreted the contract literally. The Court also noted that the Company had not approached the statutory authorities for extension of time, and did not avail the statutory remedies available to it.
“The terms and conditions incorporated in the lease deed reveal that, the allotment was made on “as-is- where-is” basis. The same was accepted by the respondent-company without any protest, whatsoever.”
“The interpretation given to the amended Rule 11-A of the Rules 1959 by the High Court, takes away the vested right of the appellant-RIICO in the title as well as in the interest that it had acquired in the property, as it had paid the entire amount for the land to the State when possession of land was handed over to it.”
“The terms incorporated in the lease deed itself provide for timely completion of construction and also for the commencement of production within a stipulated period. Records however, reveal that only 10% of total construction work stood completed by the respondent-company.”
Key Takeaways
- Land allotted on an “as-is-where-is” basis means the allottee is responsible for infrastructure development.
- Lease agreements must be interpreted literally, based on the terms agreed upon by the parties.
- Failure to adhere to the terms of a lease agreement can lead to cancellation of the allotment.
- Amendments to rules should not be interpreted in a way that divests parties of their vested rights.
- Parties must exhaust statutory remedies before approaching the High Court for writ relief.
Directions
The Supreme Court did not give any specific directions in this case, other than setting aside the High Court’s judgment and restoring the order of cancellation of allotment in favour of the respondent-company by the appellant.
Development of Law
This judgment reinforces the principles of contractual interpretation and the importance of adhering to the terms of a lease agreement. It clarifies that an “as-is-where-is” clause places the onus of infrastructure development on the allottee. The decision also clarifies the limited purpose of legal fictions. The ratio decidendi of the case is that when a land is allotted on an “as-is-where-is” basis, the allottee is responsible for infrastructure development and that the lease agreement must be interpreted literally. There is no change in the previous positions of law.
Conclusion
The Supreme Court’s decision in the case of RIICO vs. Diamond and Gem Development Corporation Ltd. upholds the sanctity of contracts and the importance of adhering to the terms of lease agreements. The court emphasized that when land is allotted on an “as-is-where-is” basis, the responsibility for infrastructure development rests with the allottee, and that the courts cannot create implied obligations. The judgment also clarifies that amendments to rules should not be interpreted in a way that divests parties of their vested rights. The court also stated that parties must exhaust statutory remedies before approaching the High Court for writ relief. The Supreme Court set aside the High Court’s judgment and restored the cancellation of the land allotment, thereby upholding the rights of RIICO.