DELHI DEVELOPMENT AUTHORITY versus NALWA SONS INVESTMENT LTD. AND ANR. on 24 April 2019

DELHI DEVELOPMENT AUTHORITY

v.

NALWA SONS INVESTMENT LTD. AND ANR.

(Civil Appeal No. 4260 of 2019)

APRIL 24, 2019

[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, transferassignment – Respondent no.1-public Ltd. company was allotted acommercial plot by the appellant-DDA – Pursuant thereto, aperpetual lease deed was executed by the appellant in favour ofrespondent no.1 – Respondent no.1 and respondent no.2 enteredinto an arrangement and invited an order of demerger from theCompany Judge, of the High Court – The order of demerger waspassed – Consequent to which, all the assets rights, powers, debtsand liabilities of respondent no.1 stood transferred to respondentno.2 – As the subject plot transferred to another company-respondentno.2, appellant demanded respondents u/cl.2(d) of the appellant’spolicy to pay Rs.6,17,53,998/- towards UEI and an amount ofRs.10,44,394/- towards misuse charges – Respondents failed to pay– Show cause notice issued by the appellant – Writ petition byrespondents challenging the said show cause notice – Single Judgeof the High Court held that the notice issued by the appellant wasvalid – However, Division Bench of High Court set aside the demandnotice and show cause notice issued by the appellant – Respondentscontended that the two companies were admittedly group companiesand respondent no.1 continued to have control over the property inquestion – Also, the transfer of property was not to an outsiderand, in any case, was without any consideration and on no-profitbasis – As a result, the respondents were not liable to pay UEI –Held: The order passed by the Company Judge approving the schemeof demerger made it clear that all property, assets, rights and powersin respect of the specified properties, including the said plot,transferred to and vested in respondent no.2 – Once it is a case oftransfer, it must abide by the stipulation in cl. 6(a) of the LeaseDeed of taking previous consent in writing of the lessor (appellant)

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Aand to fulfill such terms and conditions as may be imposed, includingto pay any unearned increase amount – Further, cl.2(d) of theappellant’s policy relating to the charge of unearned increase plainlyapplied to the present case – The obligation to pay UEI did not flowonly from the instructions/policy issued by the competent authorityof the appellant but primarily from the stipulation in the PerpetualBLease Deed in the form of cl.6(a) – Going by the plain language ofcl.6(a) of the Lease Deed, there is no reason to extricate therespondents from the obligation of the lessee (transferor) flowingtherefrom – Therefore, judgment of the Division Bench of the HighCourt set aside and the order passed by the single judge restored –CDDA policy/instructions No.LSAI/ 1(6) 87/Policy Case/ UnearnedIncrease dated 06.09.88 – cl.2(d)

Allowing the appeal, the Court

Conclusion

Allowing the appeal, the Court

HELD: 1. In the first place, it is not open to therespondents to contend that the arrangement and demergerDscheme does not result in transfer of the subject plot from theoriginal lessee (respondent No.1) to respondent No.2. Inasmuchas, clause (2) of the order passed by the Company Judgeapproving the scheme of demerger, as reproduced above, makesit amply clear that all property, assets, rights and powers in respectEof the specified properties, including the subject plot, shall standtransferred to and vest in respondent No.2. Once it is a case oftransfer, it must abide by the stipulation in clause 6(a) of the LeaseDeed 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 isFforce in the argument of the appellant that the fact situation ofthe present case would, in fact, be governed by clause 2(d) of theinstructions. This clause plainly applies to the present case. Thedemand of unearned increase from the respondents is foundedon that basis. The High Court misinterpreted the said clause andGerroneously opined that it is not applicable to a case of demergerof 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

the unearned increase from the original lessee. The fact that thesame group of persons or directors/ promoters/shareholderswould be and are associated with the transferee company doesnot cease to be a case of transfer or exempted from payment ofUEI, as envisaged in clause 6(a) of the Lease Deed. Rather,clause 2(d) of the policy, makes it expressly clear that unearnedincrease be charged irrespective of the fact that the directors inboth companies are common and the old (parent) company hasnot changed its name. [Para 14][800-E-G]

3. The fact that it was a case of transfer is reinforced fromthe order of demerger passed by the Company Judge and once itis a case of transfer, coupled with the fact that the respondentsare not covered within the categories specified in clauses 1(a) to1(d) of the policy of the appellant, they would be liable to payunearned increase (UEI) in the manner specified in clause 6(a)of the Lease Deed. The obligation to pay UEI does not flow onlyfrom the instructions issued by the competent authority of theappellant but primarily from the stipulation in the Perpetual LeaseDeed in the form of clause 6(a). Viewed thus, the Division Benchof the High Court committed a manifest error in allowing theappeal and setting aside the judgment of the Single Judge, whohad rightly dismissed the writ petition and upheld the demandnotice and the show cause notice calling upon the respondentsto pay the unearned increase amount in terms of clause 6(a) ofthe Perpetual Lease Deed. That demand was final and binding onthe respondents, so long as the stipulation in the form of clause6(a) of the Perpetual Lease was in force. [Para 15][800-G-H;801-A-C]

4. In the present case, the fact that it is a case of transferof the subject plot from the lessee (respondent No.1), a publiclimited company, to the transferee (respondent No.2), anotherpublic limited company, is indisputable. That is reinforced fromthe order of the Company Judge, formulating the scheme fordemerger of the lessee company. It is not an involuntary transferas such. The only issue is whether, by virtue of the fact that theaffairs of the transferee company (respondent No.2) are controlledby the same set of directors/shareholders of the original lessee(respondent No.1) with about 98.62% of the shares of the A

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786SUPREME COURT REPORTS

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786SUPREME COURT REPORTS

Atransferee company (respondent No.2), that would or would notabsolve the respondent No.1 of its obligations under the LeaseDeed. The answer is an emphatic “No”. For, under clause 6(a) ofthe Lease Deed, it is incumbent to seek previous consent inwriting from the lessor (appellant) and to abide by the terms andconditions specified by the appellant in that behalf, including theBpayment 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 obligationof the lessee (transferor) flowing therefrom. Therefore, thedecision of the Single Judge in dismissing the writ petitionCrestored. [Paras 16 and 18][801-E-H; 802-D-E]

M/s. Parasram Harnand Rao v. M/s. Shanti ParsadNarinder 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]D10 Suppl. SCR 1 ; M/s. General Radio and AppliancesCo. Ltd. and Ors. v. M.A. Khader (dead) by LRs. (1986)2 SCC 686 : [1986] 2 SCR 607 ; Indian Saving ProductsLtd. 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 BangaloreTransport Co. (West) v. Inder Singh and Ors. (1986) 3SCC 62 – referred to.

K. Devarajulu Naidu v. C. Ethirajavalli Thayarammaand Ors. (1949) 2 MLR 423 ; State of U.P. and Ors. v.FRenusagar Power Co. and Ors. (1988) 4 SCC 59 :[1988] 1 Suppl. SCR 627 ; New Horizons Limited andAnr. v. Union of India and Ors. (1995) 1 SCC 478 :[1994] 5 Suppl. SCR 310 – held inapplicable.

Case Law Reference

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[1980] 3 SCR 444referred toPara 8[1996] 10 Suppl. SCR 1referred toPara 8[1986] 2 SCR 607referred toPara 8[2004] 3 Suppl. SCR 535referred toPara 8H

DELHI DEVELOPMENT AUTHORITY v. NALWA SONSINVESTMENT LTD.

(1986) 3 SCC 62referred toPara 9[1988] 1Suppl. SCR 627 held inapplicablePara 9[1994] 5 Suppl. SCR 310 held inapplicablePara 9

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4260of 2019.

From the Judgment and Order dated 30.04.2014 of the HighCourt 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,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 theoriginal lessee (respondent No.1, a public limited company) in respect ofthe plot given on lease by the appellant, transfers the same to anotherpublic limited company, albeit an alter ego of the former, consequent toan order of arrangement and demerger passed by the Company Judge,then whether it is liable to pay 50% unearned increase (UEI) on themarket 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 acommercial plot in Bhikaji Cama Place, New Delhi, on 23[rd] March, 1993.Possession of the plot was handed over to respondent No.1 on 6[th]September, 1993 and a Perpetual Lease Deed dated 28[th] September,1993, was executed by the appellant in favour of respondent No.1. It isapposite to reproduce stipulation 6(a) of the said Lease Deed, whichreads thus “6. (a) The Lessee shall not sell, transfer, assign orotherwise part with the possession of the whole or any partof the Commercial Plot except with the previous consentin writing of the Lessor which he shall be entitled to refusein his absolute discretion.

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PROVIDED that in the event of the consent being given, theLessor may impose such terms and conditions as he thinksfit and the Lessor shall be entitled to claim and recover aportion of the unearned increase in the value (i.e. thedifference between the premium paid and the market value)of the Commercial plot at the time of sale, transferassignment, or parting with the possession, the amount tobe recovered being fifty per cent of the unearned increaseand the decision of the Lessor in respect of the marketvalue shall be final and binding:

PROVIDED FURTHER that the Lessor shall have the pre-emptive right to purchase the whole property or any part thereofthat may be subject of sale, transfer, assignment or otherwiseparting with the possession as the case may be, after deductionfifty percent of the unearned increase as aforesaid.

PROVIDED FURTHER that notwithstanding the limitations andconditions as mentioned in sub-clause 6(a), the lessee may sell ortransfer the floor space constructed on the plot subject to thepermission of the Lessor in writing on payment of Rs.100/- foreach flat/floor space for the first sale/transfer, for subsequentsale/ transfer the lessor may on payment of proportionate 50% ofthe unearned increase (i.e. the difference between the premiumalready paid by the purchase/transferor and the market price ofthe time of sale transfer towards the portion of the land) grantpermission to the sub-lessee/transferor for such subsequent sale/transfer of the floor space to be transferred. Prior permission ofthe lessor for such second and subsequent sale/transfer of floorspace shall be subject to the conditions of getting the Deed ofApartment and the sub-lease (as defined under the Delhi,Apartment Ownership Act, 1986) executed by the lessee in favourof such floor space buyers/transferee.

PROVIDED FURTHER that the lessee shall be required tointimate the first list of the floor space buyer/transferees givingfull details of name, address and quantum of floor space to theLessor, simultaneously with the grant of completion certificate.However, completion certificate shall be issued only on furnishingthe valid list of first purchaser of floor space alongwith copies ofdeed of apartment duly executed with each one of them. The grant of permission by the Lessor to the Lessee for transfer offloor space or subsequent transfer of floor space to anotherpersons, shall not absolve the lessee from violation of the terms &conditions of the lease. The Lessee shall also be responsible formaking all arrangements as are necessary for maintenance of thebuilding including but without limitation affecting the fire fightingsystem and the common services.”

4. Respondent No.1 and respondent No.2 entered into anarrangement and invited an order of demerger from the Company Judgeof the High Court of Punjab and Haryana at Chandigarh. On 30[th] May,2003, the High Court of Punjab and Haryana passed the order ofdemerger 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 SteelUndertaking of Jindal Strips Limited with all the property, assets,rights and powers specified in Parts I, II, and III of the Schedulehereto shall stand transferred to and vest in Jindal StainlessLimited, without further act or deed and accordingly the sameshall pursuant to Section 394(2) of the Companies Act, 1956 betransferred to and vest in Jindal Steel Limited with effectfrom the said date for all the estate and interest of JindalStrips Limited therein, subject to the existing chargesthereon more particularly described in the said scheme ofarrangement and demerger; and

3. That all the debts, liabilities dues and obligations, secured orunsecured as more particularly described in the Scheme ofArrangement and Demerger, whether provided in the books ofaccount of Jindal Strips Limited, whether disclosed or undisclosedin the balance sheet, pertaining to the Stainless Steel Undertakingand accordingly the same shall pursuant to Section 394(2) of theCompanies Act, 1956 be transferred to and become thedebts, liabilities, duties and obligations of Jindal StainlessLimited; ...”

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A5. Respondent No.2 then moved a formal application for mutatingthe property in its name vide application dated 22[nd] August, 2003.Respondent No.2 was then advised to withdraw the said application on16[th] January, 2004. Thereafter, respondent No.2 applied to the appellanton 19[th] January, 2004, for conversion of the property from leasehold tofreehold. Under the conversion policy of the appellant, the lessee wasBobliged to pay all dues, including the charges towards use, damages, subuse, unearned income (UEI), ground rent, certificate/maintenancecharges etc. The instructions followed by the competent authority inregard to charging of UEI have been articulated in document Annexure-P1, which reads thus:

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“ANNEXURE P-I

DELHI DEVELOPMENT AUTHORITY

Sub: Substitution/addition/deletion of names in lease/sub-lease ofindustrial/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 mattersof addition/deletion and substitution of names in respect ofIndustrial/commercial Lease/Sub-Lease to be executed or alreadyexecuted, 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 whichmay, where necessary, take the form of partnership firm or privatelimited company.

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b) In case of conversion of partnership firm into private limitedcompany comprising original partners as Directors/Subscribers/Share-holders.

c) In case of addition, deletion or substitution of partners in a firmor directors and conversion of sole proprietorship firm orpartnership concern into private limited company when change inconstitution is limited, for approval by the DDA, within one yearfrom the date of purchase of plot in auction. This will to apply incase of plot obtained by the party by way of allotment.

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d) Change from private limited company to public limited companywhere a private limited company becomes a public limited companyunder 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 shallbe allowed through a conveyance deed on payment of 50%unearned increase on his proportionate shares. The unearnedincrease shall be calculated at the market rate prevalent on thedate of receipt of the application in the office of the DDA.

b) Substitution of the original allottee/auction purchasers shall beallowed on payment of 50% unearned increase of his shares inthe value of the plot which will be calculated at the market rate.The market rate shall be the rate prevalent on the date of receiptof the application. It is irrespective of the fact whether the leasedeed has been executed or not.

c) 50% Unearned increase will be charged in respect ofproportionate shares of the plot parted with by way of addition,deletion or substitution of partner/partners in case of singleownership or partnership firm and Director/Directors/Shareholders/Subscribers in case of Private Limited Company.This is application where the incoming persons do not fall withinthe definition of family. Unearned increase would be charged onthe basis of market rate prevalent on the date of intimation foreach and every change in the constitution. This would be applicablein all cases where the lease deed has been executed or not.

d) In case where a private limited company/public limitedcompany separately floating a new company althoughDirectors may be the same and the name of old companyhas not changed and it still exists as it was, 50% unearnedincrease will be chargeable in such cases.

3. Interest at the rate of 18% per annum on the unearned increasefrom the date of receipt of the application intimating the changetill the payment by the company or individual or firm shall be chargedon the amount of the unearned increase payable to the DDA.

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A4. 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. VARSHNEYAdated 6.9.88"

DEPUTY FINANCIAL ADVISOR (HOUSING)No.LSAI/1(6)87/Policy Case/Unearned Increase B

6. In light of the prevailing policy, the appellant called upon therespondents to pay an amount of Rs.6,17,53,998/- (Rupees Six CroreCSeventeen Lakh Fifty Three Thousand Nine Hundred Ninety Eight only)towards UEI and an amount of Rs.10,44,394 (Rupees Ten Lakh FortyFour Thousand Three Hundred Ninety Four only) towards misusecharges. As the demanded amount was not deposited, a show causenotice was issued to the respondents on 13[th] January, 2011. Therespondents challenged both the said show cause notice and the demandDnotice by way of a writ petition filed before the High Court of Delhi atNew Delhi, bearing Writ Petition (Civil) No.1885 of 2011. The learnedSingle 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 recordEand the decisions cited, this Court is of considered view that evenwithout lifting the corporate veil, it is abundantly clear from thescheme of arrangement and de-merger of the petitioner companiesas reflected in the order (Annexure P-4) that the assets of thefirst petitioner stands transferred to the second petitioner, therebyFattracting clause 2(d) of Instructions (Annexure P-23) making50% of unearned increase chargeable and clause 1(a) of theinstructions (Annexure P-23) are inapplicable as they relate topartnership firms or private limited companies only and not topublic limited companies like the petitioners.

10. Even clause 6(a) of the Perpetual Lease (Annexure P-2)between the first petitioner and the respondent prohibits thetransfer of possession of the whole or any part of the commercialplot without previous consent of the respondent and stipulatesthat sale/transfer/assignment or parting with the possession ofthe commercial plot would attract 50% of the unearned increase G

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and thus, the first petitioner is bound by it. It is quite elementarythat without mutation of the subject premises being there in thename of the allottee, i.e., the first petitioner, there cannot be anyconversion of the subject premises from leasehold to freeholdand therefore substitution of the Lessees of commercial plots likethe instant one, clearly attracts the imposition of unearned increase,in view of a Division Bench decision of this Court in IndianShaving Products (Supra). The single bench decision in KiranKohli (Supra) relied upon by the petitioners is distinguishable onfacts and is not applicable to the instant matter, as it does not dealwith the Instructions (Annexure P-23), which squarely governsthe dispute raised herein.

11. Logically speaking, Respondent’s right to levy unearnedincrease cannot be defeated by first effecting de-merger and thento further assign, transfer etc. without previous consent of therespondent/lessor. Consequentially, impugned demand (AnnexureP-17) and the Notice (Annexure P-20) are held to be valid andthis writ petition is dismissed with costs of 50,000/, while vacatingthe interim order.”

7. The respondents carried the matter in Letters Patent Appealbefore the Division Bench of the High Court, being L.P.A. No.735 of2012. Upon examining the relevant clauses of the Perpetual Lease Deedand the policy documents of the appellant, the Division Bench, vide itsorder dated 30[th] April, 2014, was pleased to allow the appeal and setaside the demand notice and show cause notice issued by the appellantand direct the appellant to take consequential steps as per law regardingthe conversion of the property to freehold, without charging UEI, for thefollowing reasons:

“12. We have a look at the clause 6 of the perpetual lease deeddated September 28, 1993 which reads as follows:- ‘(6)(a) The Lessee shall not sell, transfer, assign or otherwisepart with the possession of the whole or any part of theCommercial Plot except with the previous consent in writingof the Lessor which he shall be entitled to refuse in his absolutediscretion.

PROVIDED that in the event of the consent being given, theLessor may impose such terms and conditions as he thinks fit AB

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Aand the Lessor shall be entitled to claim and recover a portionof the unearned increase in the value (i.e. the differencebetween the premium paid and the market value) of theCommercial plot at the time of sale, transfer, assignment, orparting with the possession, the amount to be recovered beingfifty percent of the unearned increase and the decision of theBLessor in respect of the market value shall be final and binding.’

13. A perusal of the above Clause shows that DDA, when givingconsent for sale, transfer, assignment or otherwise parting withpossession of the commercial plot, may (emphasis supplied) imposesuch terms and conditions as it thinks fit and shall be entitled toclaim and recover a portion of the unearned increase. The objectof the said Clause is to protect DDA and to permit it to recover apart of the unearned increase which the lessee obtains on sale ofthe property.

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14. In other words, the intent is to recover a part of the profitmade by the lessee.

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15. In the present facts it is obvious that no considerationwhatsoever has passed. It is a case of reorganisation of business.

16. The impugned order relies on Clause 2(d) of the Policy forcharge of unearned increase to hold that the appellants are coveredby the said clause and are hence liable to pay unearned increase.Clause 2(d) of the policy reads as under:- E

‘2(d) In case where a private limited company/public limitedcompany separately floating a new company although Directorsmay be the same and the name of old company has not changedand if still exists as it was, 50% unearned increase will bechargeable in such cases.’

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17. Reference may also be had to clause 1(b) (which deals withsituations where no unearned increase is to be charged) of thepolicy which reads as follows:- G

‘1(b) In case of conversion of partnership firm into privatelimited company comprising original partners as Directors/Subscribers/Shareholders.’

18. Clause 2(d) of the policy does not deal with a situation ofdemerger of companies within the same group with common H

Directors and Promoters/shareholders. It is dealing with a situationwhere a new company is being floated. In our view the said clausewould have no application to a case of demerger which is a merereorganisation of business like in the present case.

19. There is no specific Clause of the Policy dealing with a caseof de-merger. The facts of the present case are somewhat akinto a situation as stipulated in Clause 1(b) of the said policy, inasmuchas clause 1(b) deals with a situation of conversion of a partnershipfirm into a private limited company comprising only original partnersas Directors/Subscribers/Share Holders, namely, merereorganisation of the business. The Policy specifically providesfor no unearned increase to be charged in such a situation.

20. We may clarify that it is not every case of demerger that theunearned increase will not apply. There may be cases where anelement of sale is involved. In such a situation the issue would bedifferent.

21. Hence, in our view, the respondent is not entitled to chargeany unearned increase in the facts and circumstances of thepresent case keeping in mind a meaningful reading of Clause 6(a)of the perpetual lease and the policy for unearned increase. Evenin equity no such amount can be claimed by DDA.

22. Regarding the judgment of the Division Bench of this Court inIndian Shaving Products Limited vs. DDA (supra), in our view,the said judgment would not be applicable to the facts of the presentcase. That was a case where the petitioner had bought the entireshareholding of a company called Sharpedge Limited in 1987.The said company became a sick company under SICA. Under aproposal of rehabilitation a scheme of amalgamation was approvedby BIFR in 1992 under which all the properties of the transferorcompany Sharpedge Limited vested with the transferee companyi.e. petitioner. It was in those facts that the Court held that DDAis entitled to recover unearned increase.

23. In view of the above, we allow the present appeal and setaside the impugned order dated August 16, 2012 passed inW.P.(C)1885/2011. The impugned demand dated August 05, 2010and the notice dated January 13, 2011 are quashed. Respondentwill take consequential steps as per law regarding conversion of A

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Athe property to freehold without charging the said unearnedincrease.”

8. This decision has been challenged by the appellant on the groundthat the Division Bench has completely misconstrued the relevant clausesin the Lease Deed and the policy document. According to the appellant,Bclause 6(a) of the Lease Deed uses the expansive expression “sell,transfer, assign or otherwise part with the possession of the whole orany part of the commercial plot.” Further, the proviso thereto stipulatesthat 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 thecommercial plot at the relevant time. The appellant contends that clauseC6(a) cannot be construed to mean that if no sale consideration is involvedin the transaction, then the appellant would not be entitled to recover theUEI. For, the words “sell, transfer, assign or otherwise parting with thepossession” could be even without consideration and the stipulation makesit amply clear that the appellant is entitled to recover UEI towards theD“premium paid” on the “market value” of the commercial plot and notthe “Agreement value/amount” per se. It is contended that the fact thatthe demerger had taken place as a result of which the right, title andinterest in the plot in question stood transferred to another company, isnot in dispute. As a consequence whereof, the respondents were liableto pay UEI as demanded by the appellant. The effect of demerger of aEpublic limited company has been examined in M/s. Parasram HarnandRao Vs. M/s. Shanti Parsad Narinder Kumar Jain and Anr.,[1]Cox& Kings Ltd. and Anr. Vs. Chander Malhotra (Smt.),[2]M/s. GeneralRadio and Appliances Co. Ltd. and Ors. Vs. M.A. Khader (dead) byLRs.[3], Indian Saving Products Ltd. Vs. Delhi Development AuthorityFand Ors.,[4] and Singer India Ltd. Vs. Chander Mohan Chadha andOrs.[5] The appellant would also contend that the Division Bench erredin observing that there was no specific clause dealing with the case ofdemerger 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 limitedGcompany”, to the present case, which was admittedly a demerger of a 1 (1980) 3 SCC 5652 (1997) 2 SCC 6873 (1986) 2 SCC 6864 (2004) 120 Com. Cases 818 (Delhi)H5 (2004) 7 SCC 1

public limited company (lessee). In such a case, clause 2(d) of theinstructions would come into play, which stipulates that when anothercompany is formed, even though the directors of the two companiesremain the same and the name of transferee company is same, UEI isstill chargeable.

9. The respondents, on the other hand, have supported the viewexpressed by the Division Bench and would contend that on properconstruction of the stipulation in the Lease Deed and the policy document,including instructions relied upon by the appellant, it would be clear thatcharging of UEI would depend upon whether the property or part thereofis being effectively transferred to outsiders and for consideration. If thetransaction is not for any consideration but is merely an arrangementand demerger of the public limited companies resorted to under the aegisof the order passed by the Company Judge of the jurisdictional CompanyCourt, the question of paying any UEI in respect of such transactioncannot be countenanced. It is submitted that such a view is reinforcedfrom the other illustrations noted in the policy/instructions (clause 1thereof), such as substitution of a family member, conversion of apartnership firm into a private limited company or addition, deletion orsubstitution of partners in a firm, or change from private limited companyto public limited company, which although, are cases of transfer, but noUEI is chargeable. In the present case, contends the learned counsel for the respondents, the two companies are admittedly group companiesand respondent No.1 (original lessee) owned 98.62% of the shares ofrespondent No.2 at the relevant time. In reality, therefore, the respondentNo.1 (original lessee) continued to have control over the property inquestion and, by invoking the principle of lifting or piercing of corporateveil, it must be concluded that the transfer of property in terms of thescheme of demerger is effectively not to an outsider muchless forconsideration. The respondents have distinguished the decisions reliedupon by the appellant. According to the respondents, the exposition inthe said decisions must be understood in the context of the fact situationof the concerned case. In the present case, however, the transfer ofproperty is not to an outsider and, in any case, is without any considerationand on no-profit basis. As a result, the liability to pay UEI does notarise. To buttress the above submissions, the respondents have reliedupon the decisions in K. Devarajulu Naidu Vs. C. Ethirajavalli A

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AThayaramma and Ors.[6], Madras Bangalore Transport Co. (West)Vs. Inder Singh and Ors.[7], State of U.P. and Ors. Vs. RenusagarPower Co. and Ors.[8] and New Horizons Limited and Anr. Vs. Unionof India and Ors.[9]It is contended that being a case of demerger, theconcerned companies were not even required to pay any stamp duty,which pre-supposes that it was not a case of a voluntary transfer. It isBurged that the respondents have fulfilled the test of substantial identityas the lessee (respondent No.1) was holding 98.62% shares of thetransferee (respondent No.2) at the relevant time. In other words, thetransaction between the respondents inter se is a genuine, bona fidecase of reorganization of the business with demerger sanctioned by theCHigh Court and, for which reason, no liability towards UEI would arise.10. We have heard Ms. Binu Tamta, learned counsel for theappellant and Mr. Jayant Bhushan, learned senior counsel appearing forthe respondents.

11. For answering the seminal question, we must first advert toDthe obligation of respondent No.1 springing from the stipulation in theperpetual Lease Deed. Clause 6(a), as extracted in paragraph 3 above,envisages a bar to sell, transfer, assign or otherwise part with thepossession of the whole or any part of the commercial plot, except withthe previous consent in writing of the lessor (appellant), which the appellantEwould be entitled to refuse in its absolute discretion. While grantingconsent in terms of the proviso to clause 6(a), it is open to the appellantto impose such terms and conditions as may be deemed appropriate andclaim and recover a portion of the unearned increase in the value of thecommercial plot, being 50% of the unearned increase. The decision ofthe appellant in this behalf is final and binding upon the original lesseeF(respondent No.1). The amount towards the unearned increase iscomputed on the basis of the difference between the premium paid andthe market value of the commercial plot. In doing so, the fact that thetransfer under consideration did not involve any consideration amount orthe value paid by the transferee is below the market value, would notGinhibit recovery of 50% of the prescribed unearned increase amount onactual or, in a given case, notional basis. This is the plain meaning of the 6 (1949) 2 MLR 4237 (1986) 3 SCC 62

8 (1988) 4 SCC 59H9 (1995) 1 SCC 478

stipulation. This position is reinforced from the contemporaneousinstructions issued by the competent authority of the appellant about themanner in which the unearned increase should be charged and fromwhom such charges should be recovered. That can be discerned fromthe instructions dated 6[th] September, 1988.

12. Indeed, the said instructions advert to the category of personsfrom whom no unearned increase should be charged, despite being acase of transfer of the property as mentioned in clause (1) thereof. TheDivision Bench of the High Court has relied upon the category mentionedin clause (1)(b). The same reads thus:

“1. No unearned increase to be charged:

(a) xxxxxxxxx

(b) In case of conversion of partnership firm into private limitedcompany comprising original partners as Directors/Subscribers/Shareholders.”

From the plain language of this clause, we fail to fathom how thesaid clause will be of any avail to the respondents. For, we are not dealingwith a case of conversion of a partnership firm into a private limitedcompany as such. The fact that the instructions extricate the categoryof transfers referred to in clause (1) of the instructions from the liabilityof paying an unearned increase despite being a case of transfer, cannotbe the basis to exclude the other category of transfers/persons notspecifically covered by clause (1), such as the case of presentrespondents. That is a policy matter. The respondents were fully awareabout the existence of such a policy. That policy has not been challengedin the writ petition. Concededly, the reliefs claimed in the writ petitionwere limited to quashing of the demand letter dated 5[th] August, 2010 andnotice dated 31[st] January, 2011, demanding unearned increase; and todirect the appellant to convert the said property from leasehold to freeholdin favour of respondent No.2, without charging any unearned increase.The reliefs are founded on the assertion that the transfer was not to anyoutsider, much less for any consideration.

13. In the first place, it is not open to the respondents to contendthat the arrangement and demerger scheme does not result in transferof the subject plot from the original lessee (respondent No.1) torespondent No.2. Inasmuch as, clause (2) of the order passed by the A

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ACompany Judge approving the scheme of demerger, as reproduced above,makes it amply clear that all property, assets, rights and powers in respectof the specified properties, including the subject plot, shall standtransferred 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 oftaking previous consent in writing of the lessor (appellant) and to fulfillBsuch terms and conditions as may be imposed, including to pay anyunearned increase amount. We find force in the argument of the appellantthat the fact situation of the present case would, in fact, be governed byclause 2(d) of the instructions which reads thus:

“2. Where unearned increase is to be charged:C

(a) xxxxxxxxx

(d) In case where a private limited company/public limited companyseparately floating a new company although Directors may bethe same and the name of old company has not changed and ifDstill exists as it was, 50% unearned increase will be chargeable insuch cases.”

This clause plainly applies to the present case. The demand ofunearned increase from the respondents is founded on that basis. TheHigh Court misinterpreted the said clause and erroneously opined that itEis not applicable to a case of demerger of a public limited company.

14. The principal clause is clause 6(a) of the Lease Deed. Theclause referred to in the instructions is equally significant. Indeed, thelatter merely provides for the mechanism to recover the unearned increasefrom the original lessee. The fact that the same group of persons ordirectors/ promoters/shareholders would be and are associated with theFtransferee company does not cease to be a case of transfer or exemptedfrom 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 clearthat unearned increase be charged irrespective of the fact that thedirectors in both companies are common and the old (parent) companyGhas not changed its name.

15. The fact that it was a case of transfer is reinforced from theorder of demerger passed by the Company Judge and once it is a caseof transfer, coupled with the fact that the respondents are not covered within the categories specified in clauses 1(a) to 1(d) of the policy of theappellant, reproduced in paragraph 5 above, they would be liable to payunearned increase (UEI) in the manner specified in clause 6(a) of theLease Deed. The obligation to pay UEI does not flow only from theinstructions issued by the competent authority of the appellant butprimarily from the stipulation in the Perpetual Lease Deed in the form ofclause 6(a). Viewed thus, the Division Bench of the High Courtcommitted a manifest error in allowing the appeal and setting aside thejudgment of the learned Single Judge, who had rightly dismissed the writpetition and upheld the demand notice and the show cause notice callingupon the respondents to pay the unearned increase amount in terms ofclause 6(a) of the Perpetual Lease Deed. That demand was final andbinding on the respondents, so long as the stipulation in the form of clause6(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 SavingProducts Ltd. (supra), and Singer India Ltd. (supra), dealt with theeffect of such a transfer which results in unlawful subletting within themeaning of the concerned rent legislation. In the present case, the factthat it is a case of transfer of the subject plot from the lessee (respondentNo.1), a public limited company, to the transferee (respondent No.2),another public limited company, is indisputable. That is reinforced fromthe order of the Company Judge, formulating the scheme for demergerof the lessee company. It is not an involuntary transfer as such. The onlyissue is whether, by virtue of the fact that the affairs of the transfereecompany (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 transferee company (respondent No.2), that wouldor would not absolve the respondent No.1 of its obligations under theLease Deed. The answer is an emphatic “No”. For, under clause 6(a)of the Lease Deed, it is incumbent to seek previous consent in writingfrom the lessor (appellant) and to abide by the terms and conditionsspecified by the appellant in that behalf, including the payment ofunearned increase determined as per the said clause. Going by the plainlanguage of clause 6(a) of the Lease Deed, there is no reason to extricatethe respondents from the obligation of the lessee (transferor) flowingtherefrom.

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A17. Having said thus, the decisions pressed into service by therespondents in K. Devarajulu Naidu (supra), Madras BangaloreTransport Co. (supra), State of U.P. and Ors. (supra), and NewHorizons Limited (supra), will be of no avail. The same in no waycontradict 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 ofBdemerger passed by the Company Judge, the rigours of clause 6(a) ofthe Lease Deed read with the policy of the Corporation/Authorityregarding levy and determination of UEI would clearly apply propriovigore, irrespective of the fact that the control of the newly establishedpublic limited company (respondent No.2) is with the directors of theClessee (respondent No.1), a public limited company, or that the transferof the subject property was without consideration. Thus understood, thegrounds on which the demand letter dated 5[th] August, 2010, and theshow cause notice dated 13[th] January, 2011, have been challenged, cannotbe countenanced. Resultantly, the decision of the learned Single Judgein dismissing the writ petition deserves to be restored.

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18. Accordingly, this appeal succeeds. The impugned judgmentand order passed by the Division Bench of the High Court is set asideand instead, the judgment and order passed by the leaned Single Judgedated 16[th] August, 2012, dismissing W.P.(C) No.1885 of 2011, is restored.There shall be no order as to costs.

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All applications are also disposed of.

Ankit Gyan

Appeal allowed.

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