Supreme Court Upholds Land Rate Revision for Change of Use: Karnataka State Electronics Development Corporation Ltd. vs. Kumaon Entertainment and Hospitalities Pvt. Ltd. (2023)

Introduction

Date of the Judgment: 5 October 2023

Citation: 2023 INSC 871

Judges: Vikram Nath, J. and Ahsanuddin Amanullah, J.

Can a government corporation revise the price of land allotted for a specific purpose when the allottee changes the land use? The Supreme Court of India recently addressed this question in a case involving the Karnataka State Electronics Development Corporation Ltd. and Kumaon Entertainment and Hospitalities Pvt. Ltd. The core issue revolved around whether the corporation could demand a revised land price based on the prevailing market rate when the allottee changed the land use from Information Technology to hospitality. This judgment clarifies the rights of government corporations to revise land prices in such cases.

The bench comprised of Justice Vikram Nath and Justice Ahsanuddin Amanullah, with the judgment authored by Justice Vikram Nath.

Case Background

The Karnataka State Electronics Development Corporation Ltd. (appellant), a non-profit organization, was established to promote the Electronic & Information Technology industries in Karnataka. The appellant allotted 0.25 acres of land to Kumaon Entertainment and Hospitalities Pvt. Ltd. (respondent) in Electronic City, Bangalore, on 25 January 2006. The land was initially intended for Information Technology & Electronic Development Sector (Animation & Multi Media Services). The tentative price of the land was set at Rs. 1 Crore per acre. The allotment was on a lease-cum-sale basis for ten years, with the lease converting to a sale upon completion of the project and full payment of the final land price. Possession of the land was given to the respondent on 9 May 2006. A lease-cum-sale agreement was executed on 30 October 2006.

In 2007, the respondent applied for conversion into a private limited company, which was approved by the appellant on 18 May 2007. Subsequently, on 23 July 2007, the respondent sought to change the land use from Information Technology to the hospitality sector. The appellant granted permission on 24 September 2007, subject to a payment of Rs. 20 lakhs per acre, of which the respondent paid Rs. 5 lakhs for the 0.25 acres. However, on 6 November 2008, an audit objection was raised, stating that the prevailing rate at the time of change of use was Rs. 3.2 Crores per acre, and the appellant had suffered a loss. The appellant subsequently demanded Rs. 83.25 lakhs from the respondent for the execution of the sale deed.

Timeline:

Course of Proceedings

The respondent initially filed Writ Petition No. 10338 of 2013, challenging the appellant’s demand for Rs. 83.25 lakhs. The High Court disposed of this petition on 14 August 2014, directing the respondent to submit a representation and the appellant to decide on it within two months. The appellant rejected the representation, leading the respondent to file Writ Petition No. 1605 of 2015, seeking a direction to the appellant to execute the sale deed. The Single Judge of the High Court allowed the writ petition on 3 September 2015, relying on the appellant’s initial response to the audit objection, which justified the lower rate. The appellant then filed an intra-court appeal and a review petition, both of which were dismissed. The Division Bench dismissed the appeal on 28 July 2017, confirming the Single Judge’s judgment. This led to the present appeal before the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of the terms of the allotment letter and the lease-cum-sale agreement between the parties. The allotment letter dated 25 January 2006, stated that the land was allotted on a lease-cum-sale basis for a period of ten years. It specified that the lease would be converted into a sale upon fulfillment of all terms and conditions and payment of the full price of the land as finally fixed. The letter also indicated that the price of land was tentative at Rs. 1 Crore per acre, and the final price would be determined by the appellant later.

The lease-cum-sale agreement dated 30 October 2006, also mentioned that the price of the land was tentatively fixed at Rs. 25 lakhs. Clause 13(b) of the agreement stated that the appellant would fix the final price of the land and communicate it to the respondent, and the decision of the appellant in this regard would be final and binding. Clause 13(c) stipulated that the lease would be converted into a sale after ten years or completion of the project, subject to payment of the full and final price of the land. Further, clause 3(r)(ii) of the agreement states that the lessee shall not change the name/product (as mentioned in the application) without the previous written consent of the lessor and such consent shall be granted by the lessor subject to the condition that the lessee has to pay prevailing rate of the plot.

Arguments

Appellant’s Arguments:

• The Division Bench erred in dismissing the appeal based on a delay of 459 days, as the appellant was entitled to the benefit of Section 5 of the Limitation Act, 1963.
• The High Court erred in relying on internal communications related to the audit report, as these were not decisions taken by the Board.
• The agreement clearly stated that the rate of Rs. 1 Crore was tentative, and the final rate would be charged at the time of execution of the sale deed.
• The prevailing rate in 2007, when the change of land use was sought, was Rs. 3.2 Crores per acre, and an additional 40% was applicable for commercial use.
• Allowing the respondent to pay at the tentative rate would cause a loss to the public exchequer and would be unfair to other allottees who paid the final rate.
• The initial communication demanding only Rs. 5 lakhs was a mistake by the staff and could not override the Board’s decision.
• The appellant, being a public sector undertaking, has a duty to recover dues to protect public revenue.

Respondent’s Arguments:

• The price of land could only be revised for development work or finalization of court awards, and the respondent had already paid additional amounts for development.
• The appellant should have finalized the price at the earliest, as per the agreement.
• The respondent had already paid Rs. 5 lakhs for the change in activity, and the subsequent demand was based on an audit objection.
• The rates determined in the 141st Board meeting were not applicable to the respondent as they were for fresh allotments of stray plots.
• The appellant had initially admitted that the prevailing rate was Rs. 1 Crore per acre and could not change its stand.
• The additional demand was raised only after the respondent repeatedly requested execution of the sale deed.
• The appellant’s repeated filing of reviews and appeals was an abuse of process.
• The benefit of the Limitation Act was not admissible to the appellant due to the abuse of process in filing repeated reviews and appeals.

Sub-Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues that the court addressed were:

1. Whether the appellant was justified in demanding a revised land price based on the prevailing rate at the time of change of land use.
2. Whether the appellant was entitled to the benefit of Section 5 of the Limitation Act, 1963, regarding the delay in filing the appeal.
3. Whether the High Court was correct in relying on internal communications of the appellant to justify the lower rate.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Union of India vs. West Coast Paper Mill [ (2004) 3 SCC 458 ] – The court cited this case in relation to the applicability of Section 5 of the Limitation Act, 1963. The Court held that the appellant was entitled to the benefit of Section 5 of the Limitation Act, 1963.
• Karnataka Industrial Development Board Anr. vs. M/s Prakash Dal Mill and Ors. [(2011) 6 SCC 714] – The court distinguished this case, stating that it was not applicable to the present facts. In the cited case, the final rate was fixed belatedly for the same land, whereas in the present case, the final rate was fixed before the request for the execution of the sale deed.
• M. Nagabhushana v. State of Karnataka [(2011) 3 SCC 408] – The court held that this case was not applicable as it pertained to the principle of res judicata, which was not relevant in the present case.
• Dnyandeo Sabaji Naik v. Pradnya Prakash Khadekar [(2017) 5 SCC 496] – The court held that this case was not applicable as it related to frivolous and groundless filings, which was not the case here.
• Vinod Kapoor v. State of Goa [(2012) 12 SCC 378] – The court held that this case was not applicable as it related to filing a second SLP after withdrawal of the first, which was not the case here.
• Sandhya Educational Society v. Union of India [(2014) 7 SCC 701] – The court held that this case was not applicable as it related to the maintainability of an SLP against a review order, which was not relevant here.
• Neeraj Jhanji v. Commr. Of Customs & Central Excise [(2015) 12 SCC 695] – The court held that this case was not applicable as it related to the applicability of Section 14 of the Limitation Act, which was not being extended to the appellant.
• Haryana State Coop L&C Federation Ltd. v. Unique Coop L&C Coop Society Ltd. [(2018) 14 SCC 248] – The court held that this case was not applicable as it related to the applicability of Section 14 of the Limitation Act, which was not being extended to the appellant.

Legal Provisions:

• Section 5 of the Limitation Act, 1963 – The court considered this provision in relation to the condonation of delay in filing the appeal by the appellant.

Judgment

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

How each authority was viewed by the Court?

• Union of India vs. West Coast Paper Mill [(2004) 3 SCC 458]* – Followed; the court applied the principle of condonation of delay under Section 5 of the Limitation Act, 1963.
• Karnataka Industrial Development Board Anr. vs. M/s Prakash Dal Mill and Ors. [(2011) 6 SCC 714]* – Distinguished; the court held that the facts of this case were different and not applicable to the present case.
• M. Nagabhushana v. State of Karnataka [(2011) 3 SCC 408]* – Not Applicable; the court held that the principle of res judicata was not relevant in the present case.
• Dnyandeo Sabaji Naik v. Pradnya Prakash Khadekar [(2017) 5 SCC 496]* – Not Applicable; the court held that the case was about frivolous and groundless filings, which was not the case here.
• Vinod Kapoor v. State of Goa [(2012) 12 SCC 378]* – Not Applicable; the court held that the case related to filing a second SLP, which was not relevant here.
• Sandhya Educational Society v. Union of India [(2014) 7 SCC 701]* – Not Applicable; the court held that the case related to the maintainability of an SLP against a review order, which was not relevant here.
• Neeraj Jhanji v. Commr. Of Customs & Central Excise [(2015) 12 SCC 695]* – Not Applicable; the court held that the case related to the applicability of Section 14 of the Limitation Act, which was not being extended to the appellant.
• Haryana State Coop L&C Federation Ltd. v. Unique Coop L&C Coop Society Ltd. [(2018) 14 SCC 248]* – Not Applicable; the court held that the case related to the applicability of Section 14 of the Limitation Act, which was not being extended to the appellant.

What weighed in the mind of the Court?

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

• The court emphasized that the appellant, being a public sector undertaking, has a duty to protect public revenue. Any loss to the appellant would be a loss to the public exchequer.
• The court noted that the initial price of Rs. 1 Crore per acre was tentative, and the final price was to be determined later. The lease-cum-sale agreement also supported this view.
• The court held that the change of land use from IT to hospitality was a fresh transaction, and thus, the prevailing rate at the time of the change was applicable. The 141st Board meeting had already determined the prevailing rate to be Rs. 3.2 Crores per acre.
• The court found that the initial communication demanding Rs. 5 lakhs was a mistake by the staff and could not override the Board’s decision.
• The court held that the Division Bench should have condoned the delay in filing the appeal to advance justice.

The Court’s reasoning was primarily based on the legal interpretation of the terms of the agreement and the need to protect public revenue. The court also considered the factual aspects of the case, such as the change of land use and the initial mistake in communication, but these were secondary to the legal considerations.

Logical Reasoning

Judgment

The Supreme Court allowed the appeal, setting aside the judgments of the Division Bench and the Single Judge. The court held that the demand raised by the appellant in the notice dated 25 July 2012, was valid, and the respondent was liable to pay the demanded amount. The court emphasized that the initial price of Rs. 1 Crore per acre was tentative, and the final rate was to be determined later. The court also noted that the change of land use from IT to hospitality was a fresh transaction, and the prevailing rate at the time of the change was applicable. The court further stated that the appellant, being a public sector undertaking, had a duty to protect public revenue.

The court rejected the respondent’s argument that the final rate should have been determined earlier, stating that the final rate was determined before the request for the execution of the sale deed. The court also rejected the argument that the 141st Board meeting rate was not applicable to the respondent, holding that it applied to all cases of change of use. The court also disagreed with the High Court’s reliance on the appellant’s internal communications, stating that they were a mistake and could not override the Board’s decision.

The court also held that the Division Bench should have condoned the delay in filing the appeal, as the appellant had provided a satisfactory explanation. The court concluded that the respondent was liable to pay the revised amount, as per the demand notice dated 25 July 2012.

The court quoted the following from the judgment:

“The respondent seems to be getting undue advantage merely because the clerical staff and the officer signing the demand notice for conversion charges applied the tentative rate of Rs. 1 Crore per acre instead of the prevailing rate of Rs.3.2 Crores per acre and in addition, additional 40 percent for use as commercial as the rate of Rs.3.2 Crores per acre being that for residential purposes.”

“Neither the clerical staff nor an officer of the appellant would be competent to override or deviate from the decision of the Board of Directors taken in the 141st Board Meeting.”

“Once the respondent had made a request for change of use of the allotted plot from an IT sector industry to a Hospitality sector, it would amount to a fresh transaction and , therefore, the rate determined in the 141st Meeting would be fully applicable.”

There were no dissenting opinions in this case. The bench consisted of two judges, both of whom agreed on the final decision.

Key Takeaways

• Government corporations can revise land prices when the allottee changes the land use from the initially allotted purpose.
• Tentative prices mentioned in allotment letters are not final and are subject to revision based on prevailing rates.
• Internal communications of a corporation that contradict the decisions of the Board of Directors are not binding.
• Public sector undertakings have a duty to protect public revenue and can recover dues based on revised rates.
• Courts may condone delays in filing appeals if there is a reasonable explanation and it is necessary to advance the cause of justice.

This judgment clarifies that government corporations have the right to revise land prices when there is a change in land use, and it emphasizes the importance of protecting public revenue. It also highlights the significance of Board decisions over internal communications and the need for courts to exercise discretion in condoning delays to ensure justice.

Directions

The Supreme Court did not give any specific directions beyond setting aside the judgments of the Division Bench and the Single Judge. The court upheld the demand raised by the appellant in the notice dated 25 July 2012, and directed the respondent to pay the demanded amount.

Specific Amendments Analysis

There were no specific amendments discussed in this judgment.

Development of Law

The ratio decidendi of this case is that when a government corporation allots land at a tentative price and the allottee later changes theland use, the corporation is entitled to revise the land price based on the prevailing market rate at the time of the change of use. This is particularly important for public sector undertakings, which have a duty to protect public revenue.

This judgment clarifies that:

• Tentative prices in allotment letters are not final and can be revised.
• A change in land use constitutes a fresh transaction, allowing for price revision.
• Internal communications that contradict Board decisions are not binding.
• Public sector undertakings have a duty to recover dues to protect public revenue.

This case adds to the body of law surrounding land allotment and pricing, particularly in the context of government corporations. It emphasizes the need for transparency and adherence to Board decisions, while also recognizing the need to protect public resources.