Case: DELHI DEVELOPMENT AUTHORITY Vs. M/S. KARAMDEEP FINANCE AND INVESTMENT (I) PVT. LTD

5 SCC 492. This Court in T. Lakshmipathi (supra) had examined the doctrine of merger as contained in Section 111(d). In Paragraph Nos. 14 to 17, following was laid down:- 14. The common-law doctrine of merger is statutorily embodied in the Transfer of Property Act, 1882. Section 111(d) provides: 111. Determination of lease.—A lease of immovable property, determines— * * * (d) in case the interests of the lessee and the lessor in the whole of the property become vested at the same time in one person in the same right; * * *A bare reading of the doctrine of merger, as statutorily recognized in India, contemplates (i) coalescence of the interest of the lessee and the interest of the lessor, (ii) in the whole of the property, (iii) at the same time, (iv) in one person, and (v) in the same right. There must be a complete union of the whole interests of the lessor and the lessee so as to enable the lesser interest of the lessee sinking into the larger interest of the lessor in the reversion. 15. In Badri Narain Jha v. Rameshwar Dayal Singh, AIR 1951 SC 186 , it was held by this Court that if the lessor purchases the lessees interest, the lease no doubt is extinguished as the same man cannot at the same time be both a landlord and a tenant, but there is no extinction of the lease if one of the several lessees purchased only a part of the lessors interest. In such a case the leasehold and the reversion cannot be said to coincide. 16. In Sk. Faqir Bakhsh v. Murli Dhar, AIR 1931 PC 63 , the plaintiff was holding on lease a portion of the entire property. Subsequently, the plaintiff and the defendant became pro indiviso joint proprietors of the property by purchasing shares from the earlier owners. The lease was subsisting when the shares were bought by the parties. In a suit for accounts filed by the plaintiff it was held that the plaintiffs rights under lease of a part do not merge in his rights as joint proprietor of the whole of the property as between the parties the plaintiff held a valid and subsisting lease. 17. A Division Bench of the Patna High Court in Parmeshwar Singh v. Sureba Kuer, AIR 1925 Pat 530 , held that Section 111(d) applies only to a case where the interests of the lessee and of the lessor in the whole of the property become vested at the same time in one person in the same right. Where a co-proprietor in the property purchased for himself the interest of the lessees of the whole property, there could be no merger. On purchase of a partial interest in tenancy rights by the owner, the onus of proving that the distinction between the interests continued to be kept alive subsequently also cannot be placed on the party alleging that the distinction was so kept alive. To the same effect is the view of the law taken in Lala Nathuni Prasad v. Syed Anwar Karim, AIR 1919 Pat 390 . Merger is largely a question of intention, dependent on circumstances, and the courts will presume against it when it operates to the disadvantage of a party, as was held by this Court in Nalakath Sainuddin v. Koorikadan Sulaiman, (2002) 6 SCC 1 (SCC para 20). 27. To the same effect is judgment of this Court in Pramod Kumar Jaiswal (supra). There cannot be any dispute to the proposition laid down by this Court in reference to Section 111(d). We, however, find that in the present case, we need not rely on doctrine of merger as contained in Section 111(d). Present being a case of a Government grant by virtue of the Section 2 of the Government Grants Act, 1895, nothing in the Transfer of Property Act, 1882, shall apply or be deemed ever to have applied to any grant or other transfer. The principles contained in the Transfer of Property Act have been applied while construing the Government grants as has been noticed above. But herein issue being Government grant, the principle of merger may not be of much relevance. More so, we having construed the Sale Deed as not having conveyed all rights and interests in the leasehold property, the principle of merger does not in any manner advance the claim of the writ petitioner. 28. Learned counsel for the writ petitioner has also referred to and relied on judgment of the Division Bench of Delhi High Court in M/s. Bansal Contractors (India) Ltd. & Anr. Vs. Union of India and Others, 76 (1998) DLT 805. In the above case, sale of property was made in public auction after exercising the power under Section 269UD. From the judgment of Delhi High Court, it is not clear that as to whether any clause similar to Clause 3 as contained in the Sale Deed in question, was there. In absence of any such clause, interpretation put to the Sale Deed by the Delhi High Court cannot be faulted. It is further relevant to notice that details of the auction notice are not noticed in the judgment to find out what was the nature of the property, which was sought to be put for auction. We, thus, are of the view that judgment of Delhi High Court was on its own facts and cannot be relied on by the writ petitioner in the facts of the present case. We, thus, do not find any error in the judgment of the Division Bench setting aside the direction made by the learned Single Judge to refund the amount of conversion. The writ petitioner has made an alternative prayer in the writ petition seeking a writ of mandamus directing the respondents to allow/order the conversion of the lease hold rights into freehold rights in respect of the aforesaid plot of land without payment of any amount of alleged unearned increase and or interest due thereon.

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

Explanation:
0[ds]11. We have already noticed above that original lessee Trilochan Singh Rana entered into agreement of sale with M/s. Ocean Construction Industries Pvt. Ltd. dated 29.09.1988 to transfer the rights for a consideration of Rs.76,00,000/-. Exercising power under Section 269UD of Income Tax Act, 1961, appropriate authority passed a purchase order dated 13.12.1988 of the property in question. After the aforesaid purchase order an amount of Rs.17,86,240/- towards payment of unearned increase was paid to the DDA by Income Tax Department. After the aforesaid purchase order, auction notice dated 20.03.1989 was issued giving details of the properties, which included the property in question. In pursuance of the auction notice, the writ petitioner gave highest bid and was declared auction purchaser for an amount of Rs.1,08,05,000/-. The writ petitioner paid the full amount and was delivered the possession on 25.04.1989. Sale Deed was also executed in favour of writ petitioner on 25.09.1997. The petitioner made an application to the DDA for grant of freehold rights and also deposited amount of Rs.3,45,729/-. While processing the application for conversion of leasehold rights to free hold rights, DDA made a demand of Rs.1,43,90,348/- towards unearned increase, which was challenged by the writ petitioner. Whether the writ petitioner was liable to pay unearned increase payment is the question to be answered12. We have already noticed the clause (4)(a) of the Perpetual Lease Deed dated 18.03.1970, which provided that in event sanction is given by lessor to the lessee for sale, transfer or assignment, lessor shall be entitled to claim and recover a portion of the unearned increase in the value. The unearned increase being the difference between the premium paid and the market value. The object behind the said clause was that a lessee when is permitted to transfer the leasehold rights, the lessor should not be deprived of the difference between the premium paid and the market value. The clause was inserted in the Perpetual Lease to compensate the lessor. The present is not a case where lessee is making any transfer or seeking any permission from the lessor to give his consent. In the present case, the appropriate authority has exercised its power under Section 269UD of the Income Tax Act for the purchase of the property by the Central Government. It is by exercise of statutory power that rights of lessee were purchased by Central Government. Central Government issued auction notice for auction of property in question. All bids in auction of a property are given normally to match the market price of the property. When the petitioner gave highest bid and became the successful auction purchaser, the auction purchase has to be treated on the basis of market value of the property. Clause (4)(a) of Perpetual Lease as noted above provided for payment of unearned increase to cover up the difference between premium paid and the market value. When the auction was made on the market value of the property, we are of the view that there was no question of claim of unearned increase by the DDA. We further noticed that on purchase of the property under Section 269UD of the Income Tax Act, the Income Tax department has already paid unearned increase to the DDA. We, thus, are of the view that High Court has rightly held that DDA was not entitled to raise any demand of unearned increase from the writ petitioner. We, thus, do not find any merit in the appeal filed by the DDA, which deserves to be dismissed13. The submission, which has been much pressed by learned counsel for the writ petitioner is that, what was sold to writ petitioner by Sale Deed dated 25.09.1997 was absolute rights with all rights and interests in the property. The sale in favour of writ petitioner was not sale of leasehold rights rather it was for all rights, title and interests, hence writ petitioner acquired freehold rights. It is submitted that application for conversion of leasehold rights into freehold rights and deposit of the amount on the said application by writ petitioner was under bonafide mistake. He submits that in the writ petition, the petitioner has alternatively prayed for refund of the amount paid for conversion15. A plain reading of the above clauses does give impression that what was sold to the writ petitioner was all rights, titles, interests and appurtenances but when we read Clause 3 of the same Sale Deed, the said clause gives a different impression.16. The principles of construction of documents are well settled. While construing the documents/intention of the parties have to be ascertained.19. A perusal of the details of the properties indicate that property in question is included as Item No. 2, which is mentioned as This is a lease hold residential plot. It is to be noticed that in so far as properties at Sl. Nos. 1, 2 and 3, the words mentioned are leasehold residential plots whereas with regard to property details given at Sl. No.4, it has been mentioned that all rights, titles and interests in the dwelling unit, which, if contrasted with details of properties given at Sl. Nos. 1, 2 and 3 contains the intendment. Thus, there cannot be any doubt that property in question, which was put in auction was a property as lease hold rights residential plots. When property is auctioned, the terms and conditions of auction are binding on both the parties. When petitioner submitted his bid in pursuance of the auction notice, he was bidding for lease hold residential plot with a double storied building. While interpreting the Sale Deed, the auction notice has to be looked into to find out the nature of transaction. The Sale Deed cannot be read divorced to the auction notice or contrary to auction notice. Auction of a leasehold residential plot and auction of freehold residential plot carries different connotations. Leasehold rights are limited rights, which are subservient to freehold rights of a property. In giving bid for leasehold rights and freehold rights, different considerations are there. Clause 3 as noted above indicate that the property sold and transferred is in terms of the agreement dated 29.09.1988 between Trilochan Singh Rana and Mrs. Rani Rana to M/s. Ocean Construction Industries Pvt. Ltd. Trilochan Singh Rana and Mrs. Rani Rana were only lease holders. Thus, they could best transfer their right, which was conferred to them by the Indenture dated 18.03.1970. Learned counsel for the writ petitioner has submitted that Clause 3 being clearly contradictory to Clauses 1 and 2 has to give way to earlier clauses in the Sale Deed. He has placed reliance on judgment of this Court in Radha Sundar Dutta Vs. Mohd. Jahadur Rahim & Ors., AIR 1959 SC 24  . In Paragraph Nos. 11 and 13, following was laid down:-11. Now, it is a settled rule of interpretation that if there be admissible two constructions of a document, one of which will give effect to all the clauses therein while the other will render one or more of them nugatory, it is the former that should be adopted on the principle expressed in the maxim ut res magis valeat quam pereat. What has to be considered therefore is whether it is possible to give effect to the clause in question, which can only be by construing Exhibit B as creating a separate Patni, and at the same time reconcile the last two clauses with that construction. Taking first the provision that if there be other persons entitled to the Patni of lot Ahiyapur they are to have the same rights in the land comprised in Exhibit B, that no doubt posits the continuance in those persons of the title under the original Patni. But the true purpose of this clause is, in our opinion, not so much to declare the rights of those other persons which rest on statutory recognition, but to provide that the grantees under the document should take subject to those rights. That that is the purpose of the clause is clear from the provision for indemnity which is contained therein. Moreover, if on an interpretation of the other clauses in the grant, the correct conclusion to come to is that it creates a new Patni in favour of the grantees thereunder, it is difficult to see how the reservation of the rights of the other Patnidars of lot Ahiyapur, should such there be, affects that conclusion. We are unable to see anything in the clause under discussion, which militates against the conclusion that Exhibit B creates a new PatniThe learned Judge then refers to the two clauses corresponding to the last two clauses in Exhibit B, and comes to the conclusion that their effect was merely to, restore the position as it was when the original Patni was created, and that, in consequence, the purchaser was entitled to the Patni as it was created in 1820, and that the plaintiff was entitled to the possession of the Choukidari Chakran lands as being part of the Patni. Now, it is to be observed that in deciding that the Choukidari Chakran lands granted in 1899 became merged is lot Kooly, as it was in 1820, the learned Judge did not consider the effect of the clause providing for sale of those lands as a distinct entity under the provisions of the Regulation when there was default in the payment of rent payable thereon under the deed, and that, in our opinion, deprives the decision of much of its value. In the result, we are unable to hold that the two clauses on which the learned Judges base their conclusion are really inconsistent with the earlier clauses which support the view that the grant under Exhibit B is of a distinct Patni. Nor do we agree with them that the earlier clause providing for the sale of the Chaukidari Chakran lands in default of the payment of jama, should be construed so as not to override the later clauses. If, in fact, there is a conflict between the earlier clause and the later clauses and it is not possible to give effect to all of them, then the rule of construction is well established that it is the earlier clause that must override the later clauses and not vice versa.20. There cannot be any dispute to principles of construction of document as laid down by this Court as noticed above. But we have to look into the different clauses to find out the real intention of the granter. We need to notice that present is a case of Government grant where Government has granted rights by Sale Deed to the writ petitioner.22. Normally, the grant should be construed to include all rights, title and interest of the grantor, unless there is a contrary provision either expressly made, or implied by necessary implications, is the principle, which has been laid down by this Court in above case. Paragraph No.3 contains the intention of the granter to transfer the rights to the writ petitioner in terms of the agreement dated 29.09.1988. Clause 3 limits and explain the rights, which were given in Clause Nos. 1 and 2 of the Sale Deed, but it cannot be said that Clause 3 is totally contradictory to Clauses 1 and 2. The three clauses have to be harmoniously construed to give effect to the intention of the granter. Furthermore, as we have noticed that auction notice provided for auction of leasehold rights, which is an important factor, which cannot be brushed aside while interpreting the Sale DeedWe, thus, neither can ignore Clause 3 of the Sale Deed nor can hold that said Clause has to give way to Clauses 1 and 2 of Sale Deed. While finding out the tenor of grant as reflected in Sale Deed, the provisions of sub-section (1) of Section 269UE as amended by Finance Act has also to be taken note of25. We, thus, find that on true construction of Sale Deed, it is clear that all rights, titles and interests were not conveyed to the petitioner in the leasehold residential plot, when we read Clauses 1, 2 and 3 togetherA bare reading of the doctrine of merger, as statutorily recognized in India, contemplates (i) coalescence of the interest of the lessee and the interest of the lessor, (ii) in the whole of the property, (iii) at the same time, (iv) in one person, and (v) in the same right. There must be a complete union of the whole interests of the lessor and the lessee so as to enable the lesser interest of the lessee sinking into the larger interest of the lessor in the reversion27. To the same effect is judgment of this Court in Pramod Kumar Jaiswal (supra). There cannot be any dispute to the proposition laid down by this Court in reference to Section 111(d). We, however, find that in the present case, we need not rely on doctrine of merger as contained in Section 111(d). Present being a case of a Government grant by virtue of the Section 2 of the Government Grants Act, 1895, nothing in the Transfer of Property Act, 1882, shall apply or be deemed ever to have applied to any grant or other transfer. The principles contained in the Transfer of Property Act have been applied while construing the Government grants as has been noticed above. But herein issue being Government grant, the principle of merger may not be of much relevance. More so, we having construed the Sale Deed as not having conveyed all rights and interests in the leasehold property, the principle of merger does not in any manner advance the claim of the writ petitioner28. Learned counsel for the writ petitioner has also referred to and relied on judgment of the Division Bench of Delhi High Court in M/s. Bansal Contractors (India) Ltd. & Anr. Vs. Union of India and Others, 76 (1998) DLT 805.   In the above case, sale of property was made in public auction after exercising the power under Section 269UD. From the judgment of Delhi High Court, it is not clear that as to whether any clause similar to Clause 3 as contained in the Sale Deed in question, was there. In absence of any such clause, interpretation put to the Sale Deed by the Delhi High Court cannot be faulted. It is further relevant to notice that details of the auction notice are not noticed in the judgment to find out what was the nature of the property, which was sought to be put for auction. We, thus, are of the view that judgment of Delhi High Court was on its own facts and cannot be relied on by the writ petitioner in the facts of the present case. We, thus, do not find any error in the judgment of the Division Bench setting aside the direction made by the learned Single Judge to refund the amount of conversion. The writ petitioner has made an alternative prayer in the writ petition seeking a writ of mandamus directing the respondents to allow/order the conversion of the lease hold rights into freehold rights in respect of the aforesaid plot of land without payment of any amount of alleged unearned increase and or interest due thereon.