Case: Delhi Development Authority Vs. Nalwa Sons Investment Ltd. and Ors

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 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 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: (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 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 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 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 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 within the categories specified in clauses 1(a) to 1(d) of the policy of the 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 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 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 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 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% 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 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. 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 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 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 5 th August, 2010, and the show cause notice dated 13 th January, 2011, have been challenged, cannot be countenanced.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. For answering the seminal question, we must first advert to the obligation of respondent No.1 springing from thestipulation 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 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 (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 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 stipulation. This position is reinforced from the contemporaneous 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 6 th September, 1988.Indeed, the said instructions advert to the category of persons 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 readso unearned increase to beIn case of conversion of partnership firm into private limited company comprising original partners asthe 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 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 were limited to quashing of the demand letter dated 5 th August, 2010 and notice dated 31 st 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.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 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 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 readse unearned increase is to beIn 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 still exists as it was, 50% unearned increase will be chargeable in suchclause 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 is not applicable to a case of demerger of a public limited company.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 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 has not changed its name.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 within the categories specified in clauses 1(a) to 1(d) of the policy of the 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 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 binding on the respondents, so long as the stipulation in the form of clause 6(a) of the Perpetual Lease was in force.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 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 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% 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 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.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 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 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 5 th August, 2010, and the show cause notice dated 13 th January, 2011, have been challenged, cannot be countenanced.