1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. Notice of Motion No.4699 of 2007 In Suit No.3636 of 1999 ICICI Bank Limited. ... ... Plaintiffs v/s. Official Liquidator of Pal Peugeot Ltd. ... Defendants A n d The State of Maharashtra. ... Applicants And The Court Receiver, High Court, Bombay. ... Respondent Mr.E.P. Bharucha, Senior Advocate with Mr.Sachin Chandarana, Mr.Vikram Trivedi and Mr.Mayur Bhojwani i/by M/s.Manilal Kher Ambalal & Co. for Plaintiffs. Mr.D.A. Nalawade, Govt. Pleader for Applicants-State in support of Notice of Motion. Mr.N.M. Ganguli for Association of Engineering Workers. Mr.J.H. Mohani for Metropolitan Infrahousing i/by M/s.P.D.S. Legal. Mr.Manish Doshi i/by M/s.Vimadalal & Co. for Workers' Union. Mr.K.L. Vyas, Court Receiver. Mr.L.B.S. Puri for Official Liquidator, High Court, Bombay. ------ CORAM : SMT.ROSHAN DALVI, J. Dated : 30th June, 2008 2 P.C. : 1.The State of Maharashtra has applied for reliefs in this Notice of Motion necessarily against the Court Receiver as the Respondent. The Plaintiffs are also concerned with the reliefs, if granted, in the Notice of Motion. The Defendants- Company is in liquidation and represented by the Official Liquidator Workers' Unions of the Defendants have also appeared as they would be concerned with the reliefs, if granted, in this Notice of Motion. 2.The Suit is filed by the Plaintiffs-Bank, as a debenture trustee, for recovery of large amounts from the Defendants in respect of which an Official Liquidator has been appointed. The Plaintiffs have obtained an order for appointment of Court Receiver. The Court Receiver has been directed to sell the suit property by public auction. A notice of public auction has been given for sale of the Defendants' premises on the premise that the Defendants are the true and complete owners of the suit property as Class I occupiers thereof. 3.It is the contention of the Applicants is that the land belongs to the Government as shown in Section 20 of the 3 Maharashtra Land Revenue Code, 1966 (MLRC) and the Defendants are Class-II occupants as defined in Section 29 of the MLRC. 4.Consequently, it is the Applicants' case that the Defendants' land can be transferred only subject to restrictions on such right of transfer imposed by the Applicants. 5.It is the Plaintiffs' contention that the Defendants were always treated as Class-I occupants and hence, not subject to any restrictions on the right of transfer of the suit property. Nevertheless, the Defendants had earlier applied for and obtained permission for transfer of the suit premises. Hence, it is contended that the Applicants are not entitled to interfere in the transfer now again sought to be effected pursuant to the auction sale to be held by the Court Receiver. 6.Upon the contention that right to transfer was subject to the restrictions as made out by the Applicants, the Applicants contend that they must be permitted to withdraw the unearned income by the State to the extent of 75% of the sale-proceeds in respect of the sale price for the transfer already effected as well as the transfer now sought to be 4 effected in the auction sale by the Court Receiver. Consequently, the Applicants have applied for modification of the public notice issued to show that the lands are Class- II occupancy lands. 7.The case of the Applicants would be best understood upon considering the title of the Applicants and the restrictions imposed upon the class of lands that the suit property is claimed to be. Under Section 20 of the MLRC all the lands which are not properties of others are declared to be the properties of the State Government. It is not disputed that the suit land was initially Government land. Under Section 29 of the MLRC, there are three classes of occupants in respect of the grant of Government land. Under Section 29 (1), the occupants are of three kinds viz. Class I, Class II and Government lessees. Section 29(2) shows description of the aforesaid persons. Consequently, the occupants of Class I are persons who hold unalienated land in perpetuity and without any restrictions under right of transfer. The occupants in Class II are persons who hold unalienated land in perpetuity subject to the restrictions on the right of transfer. 8.It would have to be determined whether the Defendants, who 5 hold the suit lands, are Class I occupants or Class II occupants. The rights, if any, of the occupants would depend solely upon that position. 9.The Plaintiffs as well as the Defendants claim that the Defendants were Class I occupants and had an unrestricted right of transfer and the Applicants, mischievously, and at very late stage, only after the last public notice for the auction given by the Court Receiver in several newspapers have contended that the Defendants are Class II occupants to be entitled to 75% of the unearned income from the sale price received by the Court Receiver. 10.The right to claim the unearned income by the Applicants is shown from the Government Resolution (GR) dated 21.11.1957. The object for the claim of the unearned income and the factors to be considered for recovery of such income is shown in Clause 2 of the GR. The factors are : (i) Encouragement of building activity, (ii) The difficulty of procuring of iron and steel in the post-war period, (iii) The absence of the necessity for restricting alienation of non- agricultural property and (iv) The need for assuring for the Government a reasonable share in the unearned income. 6 11.We are concerned with the fourth factor mentioned above. Consequently, under point No.3 of the said GR, the Collector is enjoined to sanction regularization of unauthorised sale of new tenure plots by charging 62.1/2 % to 75% of the difference between the sale-proceeds and the original price plus the value of improvements made in the plot by the grantee. The Collector is required to fix the percentage difference between 62.1/2 % and 75% having regard to the circumstances and facts of individual cases. The conditions subject to which the plot was originally granted are to remain intact on regularization of such unauthorised sales. 12.In a further GR dated 8.9.1983, the explanation of “unearned income” is shown to be the difference between the current market value or the sale price whichever is higher and the occupancy price at which the land was originally granted plus the structural and permanent improvements which would influence the value of the land. Consequently, after 1983, if the sale price does not reflect the market price, the market price would be considered to determine the difference between the original price (i.e. the occupancy price) to arrive at the difference which would be the unearned income of the Government. 7 13.The suit lands are shown to be Gurcharan lands initially in the possession of Gram Panchayat, Katai (interchangeably termed as Group Gram Panchayat or Group Village Panchayat, Katai) (GP) in the record of rights. A mutation entry under village Form No.6 shows that the lands have been given in the custody of the Group Village Panchayat, Katai to be so used under Section 51 of the Gram Panchayat Act (GP Act) by taking possession receipt subject to the conditions mentioned in the mutation entry itself. One of such conditions is that if those Gurcharan lands are sold or transferred in any manner by the GP without obtaining prior permission of the Collector, the sale would not be legal. If the conditions are violated, the land was liable to forfeiture. 14.On 27.3.1962, the GP admittedly sold the suit land to the Premier Automobiles Ltd. (PAL) who were the predecessor-in- title of the Defendants, now in liquidation for a sum of Rs.55,737.50. The Sale Deed shows that the land is sold to PAL for industrial purpose under the permission of the Collector bearing No.RBLBPSR 2404, dated 9.3.1962 subject to several conditions recited therein. One of such conditions is that the land would not be transferred without the prior written permission of the Collector in any manner of transfer contemplated under the Transfer of Property Act and recited 8 in the said clause. Last of the conditions is that if the other conditions are violated, the transaction would be liable to be cancelled and will stand cancelled. Subject to those conditions permission to grant sale was given by the Collector and accordingly, recited in the Sale Deed executed between the GP and the PAL. Under the Sale Deed, upon those conditions the land was handed over to PAL. The Sale Deed recites that the ownership right was sold to PAL permanently so that PAL became the absolute owner thereof. The GP had paid all the Government cess for the property until the date of the Sale Deed. The property was stated to be absolute ownership of the GP and from the date of the Sale Deed neither the GP nor any other person would have any right, title and interest over the land sold to PAL, free from all encumbrances. The property was accordingly entered into the record of rights and the description of the property was mentioned as understood by the GP. 15.Consequently, it is seen that though there is a transfer by sale of the suit lands by the GP to PAL, it was subject to the aforesaid conditions. Consequently, the title passed to PAL absolutely as against any other party or against the right of the GP, who was specifically stated not to have had any right, title or interest from the date of the sale, but yet 9 subject to the conditions mentioned in the Sale Deed. 16.The revenue records show the land by way of mutation entry of 25th December 1962 as having been purchased by PAL from the GP for the consideration mentioned aforesaid from 27.3.1962 The conditions, as reflected in the Sale Deed, were imposed on the suit lands as they were Class II lands as described in Section 29 of the MLRC. Had they been Class I lands, there could have been no restrictions or conditions upon such transfer. 17.The Sale Deed relied upon by PAL and later the present Defendants in liquidation, as their admitted document of title, therefore, reflects the class of occupants that PAL was. PAL or the the present Defendants in liquidation PAL PEUGEOT Ltd. (PALPL) (formerly known as Kalyan Motor Company Limited (KMCL) are, therefore, estopped from contending to the contrary. 18.In fact, PAL always agreed and accepted that it was a Class II occupant and has acted accordingly. 19.PAL sought to transfer the suit lands to the Defendants in liquidation PALPL on 27.5.1996 under an Indenture of 10 Conveyance of that date for Rs.434459477.50. The conveyance, inter alia, recites that the District Collector, Thane, had granted permission on 16.8.1995 to transfer the suit lands to PALPL (which was the purchaser shown in the record of rights) subject to registration of the Conveyance Deed. 20.This permission came to be granted pursuant to the application made and a reminder sent to the District Collector. 21.The application came to be initially made on 6.10.1994 reciting the decisions of PAL to transfer the land to KMCL (to be renamed as PAL PEUGEOT Ltd.). The letter further recites that a formal permission of the Collector was requested to transfer the lands to the aforesaid vendees. Had PAL been a Class I occupier, such application for permission of the District Collector would not have been required at all. 22.A reminder for the grant of permission was sent on 14.12.1994 by PAL reciting that they have purchased the suit lands under the Government Order dated 9.3.1962 (which was the prior written permission to transfer the land 11 as shown in the Sale Deed dated 27.3.1962). Consequently, the District Collector, Thane, was requested to expedite the formal permission for transfer of lands first in the name of KMCL (to be renamed as PAL PEUGEOT Ltd.). Had the lands sought to be purchased by PAL been Class I lands such Government order also would not have been required to be obtained, prior to the purchase. 23.The District Collector of Thane, by his letter dated 16.8.1995, (recited in the Conveyance Deed dated 25.5.1996) referred to the Applications dated 16.10.1995 and 14.12.1995 and granted permission for change of name of KMCL instead of PAL in the 7/12 extract with a rider that change in the name would be effected only after the Sale Deed was registered. 24.The parties are at dispute with regard to the construction of the said permission. The fact that permission was to be obtained, was applied for, and was granted has not been disputed. It is contended by PAL and the Plaintiffs-Bank that the said permission was the permission to transfer the land subject to the registration of this Deed (with the Sub- Registrar of Assurances under the Indian Registration Act) as reflected in the Conveyance Deed dated 25.5.1996. It is 12 contended by the Applicants-State that the said permission is merely the permission for change of the name of PAL to KMCL in the record of rights and that also subject to the Conveyance Deed being registered with the Collector. It is, therefore, contended that the permission to transfer the land from PAL to PALPL was neither applied, nor granted. The only application was for the change of name of PAL to KMCL. No Sale Deed with KMCL has been executed or registered with the Collector, Thane. 25.The Sale Deed dated 27.5.1996 shows PALPL and not KMCL as the purchasers. The purchasers are described as PALPL (formerly known as KMCL). The application for permission to transfer is not made for the transfer to be effected to PALPL but for a transfer to be effected to KMCL to be renamed as PALPL. The reminder dated 14.12.1994 requests expedition of the permission for transfer of lands, firstly to KMCL to be renamed as PALPL. Hence, though PAL submitted to the authority of the Government to require a permission to be given for any transfer, it applied for and requested the permission for transfer along with the change of name of the transferee. The Collector's letter allowed the change of name but not the transfer of the land. The change of name was also allowed subject to and only after the Sale 13 Deed was registered with the Collector. 26.Assuming that the permission was not only for change of name but for the change of ownership, that is, for the transfer simpliciter in the name of the transferee. That permission was also subject to the Sale Deed being registered with the Collector. 27.The registration of the Sale Deed is not an empty formality after the permission was granted. The Collector would not be concerned with the requirement under the Indian Registration Act. His direction for registration implies registering the Conveyance Deed in his office. The registration was for the specified purpose of seeing the consideration payable under the transfer. The transfer could have been allowed upon the State of Maharashtra obtaining 62.1/2 % to 75% of the unearned income. The GR dated 21.11.1957 requires permission to be granted, inter alia, for assuring the Government of a reasonable share in the unearned income upon transfer of the properties initially belonging to the Government. It is for recovery of such unearned income that the permission would be subject to the registration of the Conveyance Deed which would reflect the consideration under the transaction to determine the 14 amount payable to the Government as unearned income. 28.In fact, under the aforesaid GR, the permission was to be granted under the fourth aforesaid factor. The other three are not applicable to the present case. The permission for transfer in the present case would not be dependent upon any other factor. 29.Even the conditions mentioned in the Sale Deed dated 27.3.1962 executed (as per the Government permission dated 9.3.1962) shows that aside from the permission that was required to be obtained as a condition precedent to any transfer, the land was sold permanently and absolutely to PAL and neither the GP nor any other person (who would include the State Government) would have any right, title or interest over the land. Hence, the Collector, Thane, could not refuse the right of transfer to PAL, but get it effectuated only after the receipt of unearned income by the Government. Hence, is the importance of the direction to register the Deed of Conveyance in his office. 30.The Conveyance Deed is not shown to have been registered with the Collector, Thane. Even the change of name, therefore, could not be effected showing KMCL (to be 15 renamed as PALPL) as the transferee. The unearned income on the suit properties could not, therefore, be determined or claimed by the Government or paid to the Government. The conditions of transfer, therefore, remained at that. 31.What is unearned income is shown in the GR dated 21.11.1957 itself. It is the difference between the sale- proceeds and the original price paid by the grantee plus the value of improvements on the plot of land transferred. The sale-proceeds, in this case, under the Conveyance Deed dated 27.5.1996 is Rs.43,44,59,477.50. The original price paid by the grantee (PAL) to the GP was Rs.55,737.50. The improvements, if any, on the suit plot of land are not specifically unascertained or shown. The difference between the aforesaid two prices is Rs.43,44,03740/-. 62.1/2% to 75% of that amount is the unearned income of the Government under the transfer of the suit lands of 1996. The unearned income under the GR dated 8.9.1983 is the difference between the current market value or the sale price (whichever is higher) and the earlier price at which the land was sold plus structural and permanent alterations. The said GR is applicable to the auction sale contemplated by the Court Receiver. 16 32.The rationale behind the share claimed by the Government is easy to see. The lands were Government lands. They were given to the Gram Panchayat to be used as Gurcharan land. The Gram Panchayat continued in possession of the land until 1962. The Gram Panchayat transferred the lands to PAL, prior to which the Gram Panchayat obtained the sanction of the Collector, Thane. From 1962 to 1996 the lands were gainfully exploited by PAL. The Government received no share in those lands, (except, of course, for the land revenue payable from the lands that were initially of its ownership). When PAL desired to transfer the land to a third party, it was initially Government land which was fully exploited by PAL which was sought to be transferred at the then market value which had risen tremendously by then. PAL could not have been entitled to make full profit upon such transfer. PAL was, however, allowed to be in possession and use the land and exploit it to any extent subject to the restrictions on the right of transfer, the only restriction being for the Government to share in the unearned income. If that were not so, it would be that the lands transferred by the Government initially to the GP would then be used by subsequent purchasers without any limitation. The conditions upon which the lands came to be transferred by the GP to PAL would be rendered otiose. The 17 prior permission obtained by the GP to allow PAL to use the lands transferred for industrial purpose, for which those lands were sought to be purchased by PAL and exploited for such use would be in complete disregard of the original title- holder, the State of Maharashtra. There would then have been no difference between the two classes of occupiers of the Government' s lands mentioned and distinguished in Section 29. 33.Since the Conveyance Deed was not registered with the Collector, Thane, the Government did not and could not obtain knowledge about the consideration for which the transfer was effected and compute the unearned income. A transfer of the suit lands without complying with the conditions of obtaining permission of the Collector would render them liable to forfeiture by the Government. In fact, the record of rights altered under the provisions of Section 149 of the MLRC pursuant to the transfer show PALPL having purchased interalia the suit lands from PAL without any reference to KMCL. 34.The lands sought to be transferred to PALPL are now sought to be auctioned by the Court Receiver. The State Government has, therefore, applied for showing the 18 description of the suit lands as Class II lands in the aforesaid auction and to receive the unearned income of the last transfer of 1996. In fact, as of now, the suit lands are liable to forfeiture by the State. Only upon the Government receiving the unearned income upon the transfer of 1996, can the suit lands be Class I lands. The lands to be now sold by the Court Receiver, being Class II lands, would carry the entitlement of the Applicants/State to withdraw the unearned income to the extent of 75% of the sale-proceeds that would be obtainable upon the auction sale as also the other incidental relief of not parting with the sale-proceeds until that is done. The Applicants have made out a prima facie case for the grant of the reliefs claimed. 35.Mr.Bharucha, on behalf of the Plaintiffs, argued that the application is barred by laches as the unearned income, if any, should have been computed within a reasonable time after the permission for transfer of the land was applied for and granted i.e. in 1994-95. It is seen that the permission, if any, was granted subject to the Sale Deed being registered with the Collector. Consequently, neither would the permission come into effect until the date of registration of the Deed with the Collector, nor could knowledge be imputed upon the State of the contents of the Conveyance Deed dated 19 27.5.1996. It is only when further transfers are sought to be made that the Government would be able and entitled to oppose the further transfer. Hence, the application is not shown to be suffering from laches. 36.The Plaintiffs have taken exception to the fact that the suit lands, which were not shown as Class II occupancy rights in the revenue records are sought to be so shown by the mutation entries made as late as in January 2008, classifying them as such without notice to the Receiver appointed in this Suit or the Official Liquidator on behalf of PALPL, in liquidation. It has to be now seen that the mutation entry earlier made has been incorrectly made. The lands have been Class II lands for the reasons aforesaid. They were not shown as such in the revenue records. Any party challenging those revenue records would be entitled to challenge them in appropriate proceedings. 37.It is contended by Mr.Bharucha that the right claimed by the State can only be claimed in a Suit. That contention is incorrect. No evidence is required to be led to determine the title of the lands. The Government records and the documents of title of PAL and PALPL in liquidation are only to be seen and interpreted to determine the title and any 20 restrictions thereon. In this application only the right of the Applicants to claim that the transfer in favour of PALPL in 1996 was not permitted by the State for want of payment of unearned income is to be considered. The application only seeks to have notice of auction sale modified to show these lands as Class II – occupancy lands. The Applicants have made out their case for showing them as such. After hearing all the parties, the suits lands are seen to be Class II – occupancy lands. The auction notice must, therefore, show that fact. Similarly the Applicants must now be entitled to withdraw the unearned income under the Conveyance Deed dated 27th May 1996 and/or with regard to any further transfer by sale in the auction sale that would take place in future. Hence, the Notice of Motion is made absolute in terms of prayers (a), (b) and (c). There shall be no order