Supreme Court of India
DELHI DEVELOPMENT AUTHORITYversusNALWA SONS INVESTMENT LTD. AND ANR.
- Citation
- 2019 INSC 564
- Decided
- 24 April 2019
- Disposal
- Appeal(s) allowed
- Bench
- A M KHANWILKAR
Holding
A demerger that transfers the leasehold property is a transfer within the meaning of clause 6(a) of the perpetual lease deed, and clause 2(d) of DDA’s policy makes the original lessee liable to pay 50% of the unearned increase.
Summary
The Delhi Development Authority (DDA) allotted a commercial plot to Jindal Strips Ltd. (respondent No.1) under a perpetual lease deed containing clause 6(a) which requires prior written consent for any transfer and allows the lessor to recover 50% of the unearned increase (UEI). Respondent No.1 and Jindal Stainless Ltd. (respondent No.2) effected a court‑approved demerger, transferring the plot to respondent No.2. DDA issued a demand notice for UEI and a show‑cause notice; the respondents challenged them. The Single Judge upheld DDA’s demand, but the Division Bench set it aside, holding that the demerger did not attract UEI. On appeal, the Supreme Court held that the demerger constituted a transfer of the leasehold interest, triggering clause 6(a) and the policy provision clause 2(d), making the original lessee liable to pay 50% UEI irrespective of common control or lack of consideration. The Court restored the Single Judge’s order and set aside the Division Bench judgment.
Issues considered
- The transfer of leasehold interest by demerger of a public limited company triggers the UEI provision in the lease deed.
- Whether clause 2(d) of DDA’s policy applies to a demerger where the same directors control both companies.
- Whether the original lessee can be exempted from UEI liability due to lack of consideration or intra‑group transfer.
Legislation cited
- Companies Act, 1956s. 394(2)
Subjects
Lease deedUnearned increaseDemergerTransfer of leaseholdCorporate veilDelhi Development AuthorityClause 6(a)Clause 2(d)Demand noticeShow cause notice
Judgment
[2019] 6 S.C.R. 783 783
DELHI DEVELOPMENT AUTHORITY A
v.
NALWA SONS INVESTMENT LTD. AND ANR.
(Civil Appeal No. 4260 of 2019)
APRIL 24, 2019 B
[A. M. KHANWILKAR AND AJAY RASTOGI, JJ.]
Lease – Lease deed – Recovery of unearned increase (UEI)
in the value of the commercial plot at the time of sale, transfer
assignment – Respondent no.1-public Ltd. company was allotted a
C
commercial plot by the appellant-DDA – Pursuant thereto, a
perpetual lease deed was executed by the appellant in favour of
respondent no.1 – Respondent no.1 and respondent no.2 entered
into an arrangement and invited an order of demerger from the
Company Judge, of the High Court – The order of demerger was
passed – Consequent to which, all the assets rights, powers, debts D
and liabilities of respondent no.1 stood transferred to respondent
no.2 – As the subject plot transferred to another company-respondent
no.2, appellant demanded respondents u/cl.2(d) of the appellant’s
policy to pay Rs.6,17,53,998/- towards UEI and an amount of
Rs.10,44,394/- towards misuse charges – Respondents failed to pay
E
– Show cause notice issued by the appellant – Writ petition by
respondents challenging the said show cause notice – Single Judge
of the High Court held that the notice issued by the appellant was
valid – However, Division Bench of High Court set aside the demand
notice and show cause notice issued by the appellant – Respondents
contended that the two companies were admittedly group companies F
and respondent no.1 continued to have control over the property in
question – Also, the transfer of property was not to an outsider
and, in any case, was without any consideration and on no-profit
basis – As a result, the respondents were not liable to pay UEI –
Held: The order passed by the Company Judge approving the scheme
G
of demerger made it clear that all property, assets, rights and powers
in respect of the specified properties, including the said plot,
transferred to and vested in respondent no.2 – Once it is a case of
transfer, it must abide by the stipulation in cl. 6(a) of the Lease
Deed of taking previous consent in writing of the lessor (appellant)
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783
784 SUPREME COURT REPORTS [2019] 6 S.C.R.
A and to fulfill such terms and conditions as may be imposed, including
to pay any unearned increase amount – Further, cl.2(d) of the
appellant’s policy relating to the charge of unearned increase plainly
applied to the present case – The obligation to pay UEI did not flow
only from the instructions/policy issued by the competent authority
of the appellant but primarily from the stipulation in the Perpetual
B
Lease Deed in the form of cl.6(a) – Going by the plain language of
cl.6(a) of the Lease Deed, there is no reason to extricate the
respondents from the obligation of the lessee (transferor) flowing
therefrom – Therefore, judgment of the Division Bench of the High
Court set aside and the order passed by the single judge restored –
C DDA policy/instructions No.LSAI/ 1(6) 87/Policy Case/ Unearned
Increase dated 06.09.88 – cl.2(d)
Allowing the appeal, the Court
HELD: 1. In the first place, it is not open to the
respondents to contend that the arrangement and demerger
D scheme does not result in transfer of the subject plot from the
original lessee (respondent No.1) to respondent No.2. Inasmuch
as, clause (2) of the order passed by the Company Judge
approving the scheme of demerger, as reproduced above, makes
it amply clear that all property, assets, rights and powers in respect
E of the specified properties, including the subject plot, shall stand
transferred to and vest in respondent No.2. Once it is a case of
transfer, it must abide by the stipulation in clause 6(a) of the Lease
Deed of taking previous consent in writing of the lessor (appellant)
and to fulfill such terms and conditions as may be imposed,
including to pay any unearned increase (UEI) amount. There is
F force in the argument of the appellant that the fact situation of
the present case would, in fact, be governed by clause 2(d) of the
instructions. This clause plainly applies to the present case. The
demand of unearned increase from the respondents is founded
on that basis. The High Court misinterpreted the said clause and
G erroneously opined that it is not applicable to a case of demerger
of a public limited company. [Para 13][799-G-H; 800-A-E]
2. The principal clause is clause 6(a) of the Lease Deed.
The clause referred to in the instructions is equally significant.
Indeed, the latter merely provides for the mechanism to recover
H
DELHI DEVELOPMENT AUTHORITY v. NALWA SONS 785
INVESTMENT LTD.
the unearned increase from the original lessee. The fact that the A
same group of persons or directors/ promoters/shareholders
would be and are associated with the transferee company does
not cease to be a case of transfer or exempted from payment of
UEI, as envisaged in clause 6(a) of the Lease Deed. Rather,
clause 2(d) of the policy, makes it expressly clear that unearned
B
increase be charged irrespective of the fact that the directors in
both companies are common and the old (parent) company has
not changed its name. [Para 14][800-E-G]
3. The fact that it was a case of transfer is reinforced from
the order of demerger passed by the Company Judge and once it
is a case of transfer, coupled with the fact that the respondents C
are not covered within the categories specified in clauses 1(a) to
1(d) of the policy of the appellant, they would be liable to pay
unearned increase (UEI) in the manner specified in clause 6(a)
of the Lease Deed. The obligation to pay UEI does not flow only
from the instructions issued by the competent authority of the D
appellant but primarily from the stipulation in the Perpetual Lease
Deed in the form of clause 6(a). Viewed thus, the Division Bench
of the High Court committed a manifest error in allowing the
appeal and setting aside the judgment of the Single Judge, who
had rightly dismissed the writ petition and upheld the demand
notice and the show cause notice calling upon the respondents E
to pay the unearned increase amount in terms of clause 6(a) of
the Perpetual Lease Deed. That demand was final and binding on
the respondents, so long as the stipulation in the form of clause
6(a) of the Perpetual Lease was in force. [Para 15][800-G-H;
801-A-C] F
4. In the present case, the fact that it is a case of transfer
of the subject plot from the lessee (respondent No.1), a public
limited company, to the transferee (respondent No.2), another
public limited company, is indisputable. That is reinforced from
the order of the Company Judge, formulating the scheme for G
demerger of the lessee company. It is not an involuntary transfer
as such. The only issue is whether, by virtue of the fact that the
affairs of the transferee company (respondent No.2) are controlled
by the same set of directors/shareholders of the original lessee
(respondent No.1) with about 98.62% of the shares of the
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786 SUPREME COURT REPORTS [2019] 6 S.C.R.
A transferee company (respondent No.2), that would or would not
absolve the respondent No.1 of its obligations under the Lease
Deed. The answer is an emphatic “No”. For, under clause 6(a) of
the Lease Deed, it is incumbent to seek previous consent in
writing from the lessor (appellant) and to abide by the terms and
conditions specified by the appellant in that behalf, including the
B
payment of unearned increase determined as per the said clause.
Going by the plain language of clause 6(a) of the Lease Deed,
there is no reason to extricate the respondents from the obligation
of the lessee (transferor) flowing therefrom. Therefore, the
decision of the Single Judge in dismissing the writ petition
C restored. [Paras 16 and 18][801-E-H; 802-D-E]
M/s. Parasram Harnand Rao v. M/s. Shanti Parsad
Narinder Kumar Jain and Anr. (1980) 3 SCC 565 :
[1980] 3 SCR 444 ; Cox & Kings Ltd. and Anr. v.
Chander Malhotra (Smt.) (1997) 2 SCC 687 : [1996]
D 10 Suppl. SCR 1 ; M/s. General Radio and Appliances
Co. Ltd. and Ors. v. M.A. Khader (dead) by LRs. (1986)
2 SCC 686 : [1986] 2 SCR 607 ; Indian Saving Products
Ltd. v. Delhi Development Authority and Ors. (2004)
120 Com. Cases 818 (Delhi) ; Singer India Ltd. v.
Chander Mohan Chadha and Ors. (2004) 7 SCC 1 :
E [2004] 3 Suppl. SCR 535 ; Madras Bangalore
Transport Co. (West) v. Inder Singh and Ors. (1986) 3
SCC 62 – referred to.
K. Devarajulu Naidu v. C. Ethirajavalli Thayaramma
and Ors. (1949) 2 MLR 423 ; State of U.P. and Ors. v.
F Renusagar Power Co. and Ors. (1988) 4 SCC 59 :
[1988] 1 Suppl. SCR 627 ; New Horizons Limited and
Anr. v. Union of India and Ors. (1995) 1 SCC 478 :
[1994] 5 Suppl. SCR 310 – held inapplicable.
Case Law Reference
G
[1980] 3 SCR 444 referred to Para 8
[1996] 10 Suppl. SCR 1 referred to Para 8
[1986] 2 SCR 607 referred to Para 8
[2004] 3 Suppl. SCR 535 referred to Para 8
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DELHI DEVELOPMENT AUTHORITY v. NALWA SONS 787
INVESTMENT LTD.
(1986) 3 SCC 62 referred to Para 9 A
[1988] 1Suppl. SCR 627 held inapplicable Para 9
[1994] 5 Suppl. SCR 310 held inapplicable Para 9
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4260
of 2019. B
From the Judgment and Order dated 30.04.2014 of the High
Court of Delhi at New Delhi in L.P.A. No. 735 of 2012.
Ms. Binu Tamta, Dhruv Tamta, Advs. for the Appellant.
Jayant Bhushan, Sr. Adv., Suman Ahsan, Abhimanyu Bhandari,
C
Sanjeev Kapoor, Akshay Mahajan, Ms. Roohina Dua, Cheitanya Madan,
M/s. Khaitan & Co., Advs. for the Respondents.
The Judgment of the Court was delivered by
A. M. KHANWILKAR, J. 1. Leave granted.
2. The seminal question involved in the present appeal is: if the D
original lessee (respondent No.1, a public limited company) in respect of
the plot given on lease by the appellant, transfers the same to another
public limited company, albeit an alter ego of the former, consequent to
an order of arrangement and demerger passed by the Company Judge,
then whether it is liable to pay 50% unearned increase (UEI) on the E
market value of the plot to the appellant (lessor)?
3. Briefly stated, in an auction conducted by the appellant,
respondent No.1 (former name Jindal Strips Limited) was allotted a
commercial plot in Bhikaji Cama Place, New Delhi, on 23rd March, 1993.
Possession of the plot was handed over to respondent No.1 on 6th F
September, 1993 and a Perpetual Lease Deed dated 28th September,
1993, was executed by the appellant in favour of respondent No.1. It is
apposite to reproduce stipulation 6(a) of the said Lease Deed, which
reads thus
“6. (a) The Lessee shall not sell, transfer, assign or G
otherwise part with the possession of the whole or any part
of the Commercial Plot except with the previous consent
in writing of the Lessor which he shall be entitled to refuse
in his absolute discretion.
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788 SUPREME COURT REPORTS [2019] 6 S.C.R.
A PROVIDED that in the event of the consent being given, the
Lessor may impose such terms and conditions as he thinks
fit and the Lessor shall be entitled to claim and recover a
portion of the unearned increase in the value (i.e. the
difference between the premium paid and the market value)
of the Commercial plot at the time of sale, transfer
B
assignment, or parting with the possession, the amount to
be recovered being fifty per cent of the unearned increase
and the decision of the Lessor in respect of the market
value shall be final and binding:
PROVIDED FURTHER that the Lessor shall have the pre-
C emptive right to purchase the whole property or any part thereof
that may be subject of sale, transfer, assignment or otherwise
parting with the possession as the case may be, after deduction
fifty percent of the unearned increase as aforesaid.
PROVIDED FURTHER that notwithstanding the limitations and
D conditions as mentioned in sub-clause 6(a), the lessee may sell or
transfer the floor space constructed on the plot subject to the
permission of the Lessor in writing on payment of Rs.100/- for
each flat/floor space for the first sale/transfer, for subsequent
sale/ transfer the lessor may on payment of proportionate 50% of
E the unearned increase (i.e. the difference between the premium
already paid by the purchase/transferor and the market price of
the time of sale transfer towards the portion of the land) grant
permission to the sub-lessee/transferor for such subsequent sale/
transfer of the floor space to be transferred. Prior permission of
the lessor for such second and subsequent sale/transfer of floor
F space shall be subject to the conditions of getting the Deed of
Apartment and the sub-lease (as defined under the Delhi,
Apartment Ownership Act, 1986) executed by the lessee in favour
of such floor space buyers/transferee.
PROVIDED FURTHER that the lessee shall be required to
G intimate the first list of the floor space buyer/transferees giving
full details of name, address and quantum of floor space to the
Lessor, simultaneously with the grant of completion certificate.
However, completion certificate shall be issued only on furnishing
the valid list of first purchaser of floor space alongwith copies of
H deed of apartment duly executed with each one of them. The
DELHI DEVELOPMENT AUTHORITY v. NALWA SONS 789
INVESTMENT LTD. [A. M. KHANWILKAR, J.]
grant of permission by the Lessor to the Lessee for transfer of A
floor space or subsequent transfer of floor space to another
persons, shall not absolve the lessee from violation of the terms &
conditions of the lease. The Lessee shall also be responsible for
making all arrangements as are necessary for maintenance of the
building including but without limitation affecting the fire fighting
B
system and the common services.”
(emphasis supplied)
4. Respondent No.1 and respondent No.2 entered into an
arrangement and invited an order of demerger from the Company Judge
of the High Court of Punjab and Haryana at Chandigarh. On 30th May, C
2003, the High Court of Punjab and Haryana passed the order of
demerger of the companies. It would be apposite to reproduce paragraphs
(2) and (3) of the said demerger order, which read thus:
“xxx xxx xxx xxx xxx
2. That with effect from the appointed date, the Stainless Steel D
Undertaking of Jindal Strips Limited with all the property, assets,
rights and powers specified in Parts I, II, and III of the Schedule
hereto shall stand transferred to and vest in Jindal Stainless
Limited, without further act or deed and accordingly the same
shall pursuant to Section 394(2) of the Companies Act, 1956 be E
transferred to and vest in Jindal Steel Limited with effect
from the said date for all the estate and interest of Jindal
Strips Limited therein, subject to the existing charges
thereon more particularly described in the said scheme of
arrangement and demerger; and
F
3. That all the debts, liabilities dues and obligations, secured or
unsecured as more particularly described in the Scheme of
Arrangement and Demerger, whether provided in the books of
account of Jindal Strips Limited, whether disclosed or undisclosed
in the balance sheet, pertaining to the Stainless Steel Undertaking
and accordingly the same shall pursuant to Section 394(2) of the G
Companies Act, 1956 be transferred to and become the
debts, liabilities, duties and obligations of Jindal Stainless
Limited; ...”
(emphasis supplied)
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790 SUPREME COURT REPORTS [2019] 6 S.C.R.
A 5. Respondent No.2 then moved a formal application for mutating
the property in its name vide application dated 22nd August, 2003.
Respondent No.2 was then advised to withdraw the said application on
16th January, 2004. Thereafter, respondent No.2 applied to the appellant
on 19th January, 2004, for conversion of the property from leasehold to
freehold. Under the conversion policy of the appellant, the lessee was
B
obliged to pay all dues, including the charges towards use, damages, sub
use, unearned income (UEI), ground rent, certificate/maintenance
charges etc. The instructions followed by the competent authority in
regard to charging of UEI have been articulated in document Annexure-
P1, which reads thus:
C “ANNEXURE P-I
DELHI DEVELOPMENT AUTHORITY
Sub: Substitution/addition/deletion of names in lease/sub-lease of
industrial/commercial plots unearned increase
D In supersession of previous instructions on the subject, the Lt.
Governor, Delhi is please to order that hence forth in the matters
of addition/deletion and substitution of names in respect of
Industrial/commercial Lease/Sub-Lease to be executed or already
executed, the following procedure shall be followed:-
E 1. No unearned increase to be charged:
a) The auction purchaser/allottee shall be permitted free of charge,
to add, delete or substitute the names of family members which
may, where necessary, take the form of partnership firm or private
limited company.
F
b) In case of conversion of partnership firm into private limited
company comprising original partners as Directors/Subscribers/
Share-holders.
c) In case of addition, deletion or substitution of partners in a firm
or directors and conversion of sole proprietorship firm or
G partnership concern into private limited company when change in
constitution is limited, for approval by the DDA, within one year
from the date of purchase of plot in auction. This will to apply in
case of plot obtained by the party by way of allotment.
H
DELHI DEVELOPMENT AUTHORITY v. NALWA SONS 791
INVESTMENT LTD. [A. M. KHANWILKAR, J.]
d) Change from private limited company to public limited company A
where a private limited company becomes a public limited company
under Section 43-A of Companies Act, 1956.
2. Where unearned increase is to be charged:
a) Addition of outsiders not falling within the family members shall
be allowed through a conveyance deed on payment of 50% B
unearned increase on his proportionate shares. The unearned
increase shall be calculated at the market rate prevalent on the
date of receipt of the application in the office of the DDA.
b) Substitution of the original allottee/auction purchasers shall be
allowed on payment of 50% unearned increase of his shares in C
the value of the plot which will be calculated at the market rate.
The market rate shall be the rate prevalent on the date of receipt
of the application. It is irrespective of the fact whether the lease
deed has been executed or not.
c) 50% Unearned increase will be charged in respect of D
proportionate shares of the plot parted with by way of addition,
deletion or substitution of partner/partners in case of single
ownership or partnership firm and Director/Directors/
Shareholders/Subscribers in case of Private Limited Company.
This is application where the incoming persons do not fall within E
the definition of family. Unearned increase would be charged on
the basis of market rate prevalent on the date of intimation for
each and every change in the constitution. This would be applicable
in all cases where the lease deed has been executed or not.
d) In case where a private limited company/public limited F
company separately floating a new company although
Directors may be the same and the name of old company
has not changed and it still exists as it was, 50% unearned
increase will be chargeable in such cases.
3. Interest at the rate of 18% per annum on the unearned increase
G
from the date of receipt of the application intimating the change
till the payment by the company or individual or firm shall be charged
on the amount of the unearned increase payable to the DDA.
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792 SUPREME COURT REPORTS [2019] 6 S.C.R.
A 4. The administrative conditions prescribed in the UO No.F.1(23)/
78/C(L) Part II dated 8.5.79 will remain unchanged.
Sd/-
S.C. VARSHNEYA
DEPUTY FINANCIAL ADVISOR (HOUSING)
B No.LSAI/1(6)87/Policy Case/Unearned Increase
dated 6.9.88"
(emphasis supplied)
6. In light of the prevailing policy, the appellant called upon the
respondents to pay an amount of Rs.6,17,53,998/- (Rupees Six Crore
C Seventeen Lakh Fifty Three Thousand Nine Hundred Ninety Eight only)
towards UEI and an amount of Rs.10,44,394 (Rupees Ten Lakh Forty
Four Thousand Three Hundred Ninety Four only) towards misuse
charges. As the demanded amount was not deposited, a show cause
notice was issued to the respondents on 13th January, 2011. The
respondents challenged both the said show cause notice and the demand
D notice by way of a writ petition filed before the High Court of Delhi at
New Delhi, bearing Writ Petition (Civil) No.1885 of 2011. The learned
Single Judge of the High Court, after considering the rival submissions,
eventually dismissed the said writ petition by recording following reasons:
“9. Upon considering the submissions advanced, material on record
E and the decisions cited, this Court is of considered view that even
without lifting the corporate veil, it is abundantly clear from the
scheme of arrangement and de-merger of the petitioner companies
as reflected in the order (Annexure P-4) that the assets of the
first petitioner stands transferred to the second petitioner, thereby
F attracting clause 2(d) of Instructions (Annexure P-23) making
50% of unearned increase chargeable and clause 1(a) of the
instructions (Annexure P-23) are inapplicable as they relate to
partnership firms or private limited companies only and not to
public limited companies like the petitioners.
G 10. Even clause 6(a) of the Perpetual Lease (Annexure P-2)
between the first petitioner and the respondent prohibits the
transfer of possession of the whole or any part of the commercial
plot without previous consent of the respondent and stipulates
that sale/transfer/assignment or parting with the possession of
the commercial plot would attract 50% of the unearned increase
H
DELHI DEVELOPMENT AUTHORITY v. NALWA SONS 793
INVESTMENT LTD. [A. M. KHANWILKAR, J.]
and thus, the first petitioner is bound by it. It is quite elementary A
that without mutation of the subject premises being there in the
name of the allottee, i.e., the first petitioner, there cannot be any
conversion of the subject premises from leasehold to freehold
and therefore substitution of the Lessees of commercial plots like
the instant one, clearly attracts the imposition of unearned increase,
B
in view of a Division Bench decision of this Court in Indian
Shaving Products (Supra). The single bench decision in Kiran
Kohli (Supra) relied upon by the petitioners is distinguishable on
facts and is not applicable to the instant matter, as it does not deal
with the Instructions (Annexure P-23), which squarely governs
the dispute raised herein. C
11. Logically speaking, Respondent’s right to levy unearned
increase cannot be defeated by first effecting de-merger and then
to further assign, transfer etc. without previous consent of the
respondent/lessor. Consequentially, impugned demand (Annexure
P-17) and the Notice (Annexure P-20) are held to be valid and D
this writ petition is dismissed with costs of 50,000/, while vacating
the interim order.”
7. The respondents carried the matter in Letters Patent Appeal
before the Division Bench of the High Court, being L.P.A. No.735 of
2012. Upon examining the relevant clauses of the Perpetual Lease Deed E
and the policy documents of the appellant, the Division Bench, vide its
order dated 30th April, 2014, was pleased to allow the appeal and set
aside the demand notice and show cause notice issued by the appellant
and direct the appellant to take consequential steps as per law regarding
the conversion of the property to freehold, without charging UEI, for the
following reasons: F
“12. We have a look at the clause 6 of the perpetual lease deed
dated September 28, 1993 which reads as follows:-
‘(6)(a) The Lessee shall not sell, transfer, assign or otherwise
part with the possession of the whole or any part of the G
Commercial Plot except with the previous consent in writing
of the Lessor which he shall be entitled to refuse in his absolute
discretion.
PROVIDED that in the event of the consent being given, the
Lessor may impose such terms and conditions as he thinks fit
H
794 SUPREME COURT REPORTS [2019] 6 S.C.R.
A and the Lessor shall be entitled to claim and recover a portion
of the unearned increase in the value (i.e. the difference
between the premium paid and the market value) of the
Commercial plot at the time of sale, transfer, assignment, or
parting with the possession, the amount to be recovered being
fifty percent of the unearned increase and the decision of the
B
Lessor in respect of the market value shall be final and binding.’
13. A perusal of the above Clause shows that DDA, when giving
consent for sale, transfer, assignment or otherwise parting with
possession of the commercial plot, may (emphasis supplied) impose
such terms and conditions as it thinks fit and shall be entitled to
C claim and recover a portion of the unearned increase. The object
of the said Clause is to protect DDA and to permit it to recover a
part of the unearned increase which the lessee obtains on sale of
the property.
14. In other words, the intent is to recover a part of the profit
D made by the lessee.
15. In the present facts it is obvious that no consideration
whatsoever has passed. It is a case of reorganisation of business.
16. The impugned order relies on Clause 2(d) of the Policy for
E charge of unearned increase to hold that the appellants are covered
by the said clause and are hence liable to pay unearned increase.
Clause 2(d) of the policy reads as under:-
‘2(d) In case where a private limited company/public limited
company separately floating a new company although Directors
F may be the same and the name of old company has not changed
and if still exists as it was, 50% unearned increase will be
chargeable in such cases.’
17. Reference may also be had to clause 1(b) (which deals with
situations where no unearned increase is to be charged) of the
policy which reads as follows:-
G
‘1(b) In case of conversion of partnership firm into private
limited company comprising original partners as Directors/
Subscribers/Shareholders.’
18. Clause 2(d) of the policy does not deal with a situation of
H demerger of companies within the same group with common
DELHI DEVELOPMENT AUTHORITY v. NALWA SONS 795
INVESTMENT LTD. [A. M. KHANWILKAR, J.]
Directors and Promoters/shareholders. It is dealing with a situation A
where a new company is being floated. In our view the said clause
would have no application to a case of demerger which is a mere
reorganisation of business like in the present case.
19. There is no specific Clause of the Policy dealing with a case
of de-merger. The facts of the present case are somewhat akin B
to a situation as stipulated in Clause 1(b) of the said policy, inasmuch
as clause 1(b) deals with a situation of conversion of a partnership
firm into a private limited company comprising only original partners
as Directors/Subscribers/Share Holders, namely, mere
reorganisation of the business. The Policy specifically provides
for no unearned increase to be charged in such a situation. C
20. We may clarify that it is not every case of demerger that the
unearned increase will not apply. There may be cases where an
element of sale is involved. In such a situation the issue would be
different.
D
21. Hence, in our view, the respondent is not entitled to charge
any unearned increase in the facts and circumstances of the
present case keeping in mind a meaningful reading of Clause 6(a)
of the perpetual lease and the policy for unearned increase. Even
in equity no such amount can be claimed by DDA.
E
22. Regarding the judgment of the Division Bench of this Court in
Indian Shaving Products Limited vs. DDA (supra), in our view,
the said judgment would not be applicable to the facts of the present
case. That was a case where the petitioner had bought the entire
shareholding of a company called Sharpedge Limited in 1987.
The said company became a sick company under SICA. Under a F
proposal of rehabilitation a scheme of amalgamation was approved
by BIFR in 1992 under which all the properties of the transferor
company Sharpedge Limited vested with the transferee company
i.e. petitioner. It was in those facts that the Court held that DDA
is entitled to recover unearned increase. G
23. In view of the above, we allow the present appeal and set
aside the impugned order dated August 16, 2012 passed in
W.P.(C)1885/2011. The impugned demand dated August 05, 2010
and the notice dated January 13, 2011 are quashed. Respondent
will take consequential steps as per law regarding conversion of
H
796 SUPREME COURT REPORTS [2019] 6 S.C.R.
A the property to freehold without charging the said unearned
increase.”
8. This decision has been challenged by the appellant on the ground
that the Division Bench has completely misconstrued the relevant clauses
in the Lease Deed and the policy document. According to the appellant,
B clause 6(a) of the Lease Deed uses the expansive expression “sell,
transfer, assign or otherwise part with the possession of the whole or
any part of the commercial plot.” Further, the proviso thereto stipulates
that the lessor shall be entitled to claim and recover UEI on the value
(i.e. difference between the premium paid and the market value) of the
commercial plot at the relevant time. The appellant contends that clause
C 6(a) cannot be construed to mean that if no sale consideration is involved
in the transaction, then the appellant would not be entitled to recover the
UEI. For, the words “sell, transfer, assign or otherwise parting with the
possession” could be even without consideration and the stipulation makes
it amply clear that the appellant is entitled to recover UEI towards the
D “premium paid” on the “market value” of the commercial plot and not
the “Agreement value/amount” per se. It is contended that the fact that
the demerger had taken place as a result of which the right, title and
interest in the plot in question stood transferred to another company, is
not in dispute. As a consequence whereof, the respondents were liable
to pay UEI as demanded by the appellant. The effect of demerger of a
E public limited company has been examined in M/s. Parasram Harnand
Rao Vs. M/s. Shanti Parsad Narinder Kumar Jain and Anr.,1 Cox
& Kings Ltd. and Anr. Vs. Chander Malhotra (Smt.),2 M/s. General
Radio and Appliances Co. Ltd. and Ors. Vs. M.A. Khader (dead) by
LRs.3, Indian Saving Products Ltd. Vs. Delhi Development Authority
F and Ors.,4 and Singer India Ltd. Vs. Chander Mohan Chadha and
Ors.5 The appellant would also contend that the Division Bench erred
in observing that there was no specific clause dealing with the case of
demerger in the instructions (regarding implementation of the policy)
relied upon by the appellant. Further, it wrongly applied clause 1(b), which
relates to conversion of a “partnership firm” into a “private limited
G company”, to the present case, which was admittedly a demerger of a
1
(1980) 3 SCC 565
2
(1997) 2 SCC 687
3
(1986) 2 SCC 686
4
(2004) 120 Com. Cases 818 (Delhi)
H 5
(2004) 7 SCC 1
DELHI DEVELOPMENT AUTHORITY v. NALWA SONS 797
INVESTMENT LTD. [A. M. KHANWILKAR, J.]
public limited company (lessee). In such a case, clause 2(d) of the A
instructions would come into play, which stipulates that when another
company is formed, even though the directors of the two companies
remain the same and the name of transferee company is same, UEI is
still chargeable.
9. The respondents, on the other hand, have supported the view B
expressed by the Division Bench and would contend that on proper
construction of the stipulation in the Lease Deed and the policy document,
including instructions relied upon by the appellant, it would be clear that
charging of UEI would depend upon whether the property or part thereof
is being effectively transferred to outsiders and for consideration. If the
transaction is not for any consideration but is merely an arrangement C
and demerger of the public limited companies resorted to under the aegis
of the order passed by the Company Judge of the jurisdictional Company
Court, the question of paying any UEI in respect of such transaction
cannot be countenanced. It is submitted that such a view is reinforced
from the other illustrations noted in the policy/instructions (clause 1 D
thereof), such as substitution of a family member, conversion of a
partnership firm into a private limited company or addition, deletion or
substitution of partners in a firm, or change from private limited company
to public limited company, which although, are cases of transfer, but no
UEI is chargeable. In the present case, contends the learned counsel for
the respondents, the two companies are admittedly group companies E
and respondent No.1 (original lessee) owned 98.62% of the shares of
respondent No.2 at the relevant time. In reality, therefore, the respondent
No.1 (original lessee) continued to have control over the property in
question and, by invoking the principle of lifting or piercing of corporate
veil, it must be concluded that the transfer of property in terms of the F
scheme of demerger is effectively not to an outsider muchless for
consideration. The respondents have distinguished the decisions relied
upon by the appellant. According to the respondents, the exposition in
the said decisions must be understood in the context of the fact situation
of the concerned case. In the present case, however, the transfer of
property is not to an outsider and, in any case, is without any consideration G
and on no-profit basis. As a result, the liability to pay UEI does not
arise. To buttress the above submissions, the respondents have relied
upon the decisions in K. Devarajulu Naidu Vs. C. Ethirajavalli
H
798 SUPREME COURT REPORTS [2019] 6 S.C.R.
A Thayaramma and Ors.6, Madras Bangalore Transport Co. (West)
Vs. Inder Singh and Ors.7, State of U.P. and Ors. Vs. Renusagar
Power Co. and Ors.8 and New Horizons Limited and Anr. Vs. Union
of India and Ors.9 It is contended that being a case of demerger, the
concerned companies were not even required to pay any stamp duty,
which pre-supposes that it was not a case of a voluntary transfer. It is
B
urged that the respondents have fulfilled the test of substantial identity
as the lessee (respondent No.1) was holding 98.62% shares of the
transferee (respondent No.2) at the relevant time. In other words, the
transaction between the respondents inter se is a genuine, bona fide
case of reorganization of the business with demerger sanctioned by the
C High Court and, for which reason, no liability towards UEI would arise.
10. We have heard Ms. Binu Tamta, learned counsel for the
appellant and Mr. Jayant Bhushan, learned senior counsel appearing for
the respondents.
11. For answering the seminal question, we must first advert to
D the obligation of respondent No.1 springing from the stipulation in the
perpetual Lease Deed. Clause 6(a), as extracted in paragraph 3 above,
envisages a bar to sell, transfer, assign or otherwise part with the
possession of the whole or any part of the commercial plot, except with
the previous consent in writing of the lessor (appellant), which the appellant
E would be entitled to refuse in its absolute discretion. While granting
consent in terms of the proviso to clause 6(a), it is open to the appellant
to impose such terms and conditions as may be deemed appropriate and
claim and recover a portion of the unearned increase in the value of the
commercial plot, being 50% of the unearned increase. The decision of
the appellant in this behalf is final and binding upon the original lessee
F (respondent No.1). The amount towards the unearned increase is
computed on the basis of the difference between the premium paid and
the market value of the commercial plot. In doing so, the fact that the
transfer under consideration did not involve any consideration amount or
the value paid by the transferee is below the market value, would not
G inhibit recovery of 50% of the prescribed unearned increase amount on
actual or, in a given case, notional basis. This is the plain meaning of the
6
(1949) 2 MLR 423
7
(1986) 3 SCC 62
8
(1988) 4 SCC 59
9
H (1995) 1 SCC 478
DELHI DEVELOPMENT AUTHORITY v. NALWA SONS 799
INVESTMENT LTD. [A. M. KHANWILKAR, J.]
stipulation. This position is reinforced from the contemporaneous A
instructions issued by the competent authority of the appellant about the
manner in which the unearned increase should be charged and from
whom such charges should be recovered. That can be discerned from
the instructions dated 6th September, 1988.
12. Indeed, the said instructions advert to the category of persons B
from whom no unearned increase should be charged, despite being a
case of transfer of the property as mentioned in clause (1) thereof. The
Division Bench of the High Court has relied upon the category mentioned
in clause (1)(b). The same reads thus:
“1. No unearned increase to be charged: C
(a) xxx xxx xxx
(b) In case of conversion of partnership firm into private limited
company comprising original partners as Directors/Subscribers/
Shareholders.”
D
From the plain language of this clause, we fail to fathom how the
said clause will be of any avail to the respondents. For, we are not dealing
with a case of conversion of a partnership firm into a private limited
company as such. The fact that the instructions extricate the category
of transfers referred to in clause (1) of the instructions from the liability
of paying an unearned increase despite being a case of transfer, cannot E
be the basis to exclude the other category of transfers/persons not
specifically covered by clause (1), such as the case of present
respondents. That is a policy matter. The respondents were fully aware
about the existence of such a policy. That policy has not been challenged
in the writ petition. Concededly, the reliefs claimed in the writ petition F
were limited to quashing of the demand letter dated 5th August, 2010 and
notice dated 31st January, 2011, demanding unearned increase; and to
direct the appellant to convert the said property from leasehold to freehold
in favour of respondent No.2, without charging any unearned increase.
The reliefs are founded on the assertion that the transfer was not to any
outsider, much less for any consideration. G
13. In the first place, it is not open to the respondents to contend
that the arrangement and demerger scheme does not result in transfer
of the subject plot from the original lessee (respondent No.1) to
respondent No.2. Inasmuch as, clause (2) of the order passed by the
H
800 SUPREME COURT REPORTS [2019] 6 S.C.R.
A Company Judge approving the scheme of demerger, as reproduced above,
makes it amply clear that all property, assets, rights and powers in respect
of the specified properties, including the subject plot, shall stand
transferred to and vest in respondent No.2. Once it is a case of transfer,
it must abide by the stipulation in clause 6(a) of the Lease Deed of
taking previous consent in writing of the lessor (appellant) and to fulfill
B
such terms and conditions as may be imposed, including to pay any
unearned increase amount. We find force in the argument of the appellant
that the fact situation of the present case would, in fact, be governed by
clause 2(d) of the instructions which reads thus:
“2. Where unearned increase is to be charged:
C
(a) xxx xxx xxx
(d) In case where a private limited company/public limited company
separately floating a new company although Directors may be
the same and the name of old company has not changed and if
D still exists as it was, 50% unearned increase will be chargeable in
such cases.”
This clause plainly applies to the present case. The demand of
unearned increase from the respondents is founded on that basis. The
High Court misinterpreted the said clause and erroneously opined that it
E is not applicable to a case of demerger of a public limited company.
14. The principal clause is clause 6(a) of the Lease Deed. The
clause referred to in the instructions is equally significant. Indeed, the
latter merely provides for the mechanism to recover the unearned increase
from the original lessee. The fact that the same group of persons or
F directors/ promoters/shareholders would be and are associated with the
transferee company does not cease to be a case of transfer or exempted
from payment of UEI, as envisaged in clause 6(a) of the Lease Deed.
Rather, clause 2(d) of the policy, noted above, makes it expressly clear
that unearned increase be charged irrespective of the fact that the
directors in both companies are common and the old (parent) company
G has not changed its name.
15. The fact that it was a case of transfer is reinforced from the
order of demerger passed by the Company Judge and once it is a case
of transfer, coupled with the fact that the respondents are not covered
H
DELHI DEVELOPMENT AUTHORITY v. NALWA SONS 801
INVESTMENT LTD. [A. M. KHANWILKAR, J.]
within the categories specified in clauses 1(a) to 1(d) of the policy of the A
appellant, reproduced in paragraph 5 above, they would be liable to pay
unearned increase (UEI) in the manner specified in clause 6(a) of the
Lease Deed. The obligation to pay UEI does not flow only from the
instructions issued by the competent authority of the appellant but
primarily from the stipulation in the Perpetual Lease Deed in the form of
B
clause 6(a). Viewed thus, the Division Bench of the High Court
committed a manifest error in allowing the appeal and setting aside the
judgment of the learned Single Judge, who had rightly dismissed the writ
petition and upheld the demand notice and the show cause notice calling
upon the respondents to pay the unearned increase amount in terms of
clause 6(a) of the Perpetual Lease Deed. That demand was final and C
binding on the respondents, so long as the stipulation in the form of clause
6(a) of the Perpetual Lease was in force.
16. Reverting to the decisions pressed into service by the appellant,
to wit, Parasram Harnand Rao (supra), Cox & Kings Ltd. (supra),
M/s. General Radio and Appliances Co. Ltd. (supra), Indian Saving D
Products Ltd. (supra), and Singer India Ltd. (supra), dealt with the
effect of such a transfer which results in unlawful subletting within the
meaning of the concerned rent legislation. In the present case, the fact
that it is a case of transfer of the subject plot from the lessee (respondent
No.1), a public limited company, to the transferee (respondent No.2),
another public limited company, is indisputable. That is reinforced from E
the order of the Company Judge, formulating the scheme for demerger
of the lessee company. It is not an involuntary transfer as such. The only
issue is whether, by virtue of the fact that the affairs of the transferee
company (respondent No.2) are controlled by the same set of directors/
shareholders of the original lessee (respondent No.1) with about 98.62% F
of the shares of the transferee company (respondent No.2), that would
or would not absolve the respondent No.1 of its obligations under the
Lease Deed. The answer is an emphatic “No”. For, under clause 6(a)
of the Lease Deed, it is incumbent to seek previous consent in writing
from the lessor (appellant) and to abide by the terms and conditions
specified by the appellant in that behalf, including the payment of G
unearned increase determined as per the said clause. Going by the plain
language of clause 6(a) of the Lease Deed, there is no reason to extricate
the respondents from the obligation of the lessee (transferor) flowing
therefrom.
H
802 SUPREME COURT REPORTS [2019] 6 S.C.R.
A 17. Having said thus, the decisions pressed into service by the
respondents in K. Devarajulu Naidu (supra), Madras Bangalore
Transport Co. (supra), State of U.P. and Ors. (supra), and New
Horizons Limited (supra), will be of no avail. The same in no way
contradict the stand of the appellant that as a consequence of a demerger,
being a case of transfer of the subject property in terms of the order of
B
demerger passed by the Company Judge, the rigours of clause 6(a) of
the Lease Deed read with the policy of the Corporation/Authority
regarding levy and determination of UEI would clearly apply proprio
vigore, irrespective of the fact that the control of the newly established
public limited company (respondent No.2) is with the directors of the
C lessee (respondent No.1), a public limited company, or that the transfer
of the subject property was without consideration. Thus understood, the
grounds on which the demand letter dated 5th August, 2010, and the
show cause notice dated 13th January, 2011, have been challenged, cannot
be countenanced. Resultantly, the decision of the learned Single Judge
in dismissing the writ petition deserves to be restored.
D
18. Accordingly, this appeal succeeds. The impugned judgment
and order passed by the Division Bench of the High Court is set aside
and instead, the judgment and order passed by the leaned Single Judge
dated 16th August, 2012, dismissing W.P.(C) No.1885 of 2011, is restored.
There shall be no order as to costs.
E
All applications are also disposed of.
Ankit Gyan Appeal allowed.
F
G
H
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