# MIS AJAR ENTERPRISES PRIVATE LIMITED v. SATYANARAYAN SOMANI AND ORS - **Citation:** [2017] 8 S.C.R. 388 - **Court:** Supreme Court of India - **Decided:** 2017-08-24 - **Case number:** Civil Appeal No. 10852 of 2017 - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-ajar-enterprises-private-limited-v-satyanarayan-somani-and-ors-32158 - **Pages:** 40 ## Headnote A B [2017] 8 S.C.R. 388 MIS AJAR ENTERPRISES PRIVATE LIMITED v. SATYANARAYAN SOMANI AND ORS. (Civil Appeal No. 10852 of 2017) AUGUST 24, 2017 [JAGDISH SINGH KHEHAR, CJI, AND DR. D. Y. CHANDRACHUD, JJ.[ Madhya Pradesh Nagar Tatha Gram Nivesh Vikasit Bhoomiyo, Griho, Bhavano Tatha Anya Sanrachanao Ka Vyayan Niyam, 1975 C - rr. 24 and 25 - Right of renewal of lease by lessor - Held: Rule 24 does not embody an absolute or indefeasible right of renewal - A development authority as a public body cannot act arbitrarily or at its own whims, in deciding whether or not to renew the lease - its decisions must be fair, reasonable and guided by public interest - D Public interest postulates both protecting the interests of the authority and ensuring fairness to the leaseholder who may have constructed on the land in pursuance of the leasehold interest - Neither r. 24 nor r. 25 cun be read to divest the authority of the element of discretion on whether to renew the lease - However, exercise of E F discretion must meet the touchstone of Art. 14 of the Constitution - 011 facts, order passed by the High Court cancelling the renewal of lease deed by the Development Authority in favour of appellant company-auction purchaser as also the conversion of leasehold right to freehold, does not call for interference - Public body acted oblivious to and in disregard of public interest - Land allotted to the company in liquidation was not for the purpose for which the appellant company stepped in - Purpose for allotment was for developing a residential colony for its employees, and not for commercial exploitation to a developer - There was no absolute or indefeasible right to renewal either in company in liquidation or in appellant-company which succeeded to the leasehold interest - G Development Authority chose to blink at its obligations by conferring a largesse on appellant-company - Mere acquisition by appellantcompany of the leasehold interest for the remainder of the term together with the benefits of the original lease covenants, did not ipso jure entitle appellant-company to renewal of the lease -As also H subsequent conversion of the land to freehold cannot enure to the 388 MIS AJAR ENTERPRISES PRIVATE LIMITED v. 389 SATYANARAYAN SOMANI benefit of appellant since the underlying basis of the entire A transaction stood vitiated by fraud - When public bodies are vested with control over land which was acquired for facilitating planned development, no authority can claim an immunity from its accountability to matters of public interest - Thus, the order passed by the High Court is upheld - However, rights created in favour of B third party purchasers of plots through execution of registered sale deeds by the appellant-company would not be disturbed - Madhya Pradesh Land Revenue Code, 1959 - ss. 181 and 182. UDA-Ujjain Development Authority granted leasehold rights to USO for a period of thirty years to construct residential houses. IISCO C was ordered to be wound up by the High Court. The Official Liquidator took over and auctioned the assets of the company, including the leasehold rights. The leasehold rights were purchased by the appellant company. UDA's case that it had cancelled its allotment and re-entered upon the land. However, UDA was not entitled to seek possession of the land from official liquidator. The appellant was assigned leasehold rights for D the residuary period. After expiry of the period, UDA renewed the lease agreement for another period of thirty years. Thereafter, leasehold rights were converted into freehold rights. The deed of renewal was challenged. The High Court cancelled the renewal oflease deed by UDA in favour of appellant company as also the conversion ofleasehold right to freehold; directed that the possession ofland be taken back; that in order to fetch the best price land be put to public auction; and that the transfer fee be charged on the basis of the guidelines for 2011-2012 and the differential be recovered wit ## Text _Characters 0–39,899 of 96,897. This is a partial read: ask again with offset=39899 for what follows._ A B [2017] 8 S.C.R. 388 MIS AJAR ENTERPRISES PRIVATE LIMITED v. SATYANARAYAN SOMANI AND ORS. (Civil Appeal No. 10852 of 2017) AUGUST 24, 2017 [JAGDISH SINGH KHEHAR, CJI, AND DR. D. Y. CHANDRACHUD, JJ.[ Madhya Pradesh Nagar Tatha Gram Nivesh Vikasit Bhoomiyo, Griho, Bhavano Tatha Anya Sanrachanao Ka Vyayan Niyam, 1975 C - rr. 24 and 25 - Right of renewal of lease by lessor - Held: Rule 24 does not embody an absolute or indefeasible right of renewal - A development authority as a public body cannot act arbitrarily or at its own whims, in deciding whether or not to renew the lease - its decisions must be fair, reasonable and guided by public interest - D Public interest postulates both protecting the interests of the authority and ensuring fairness to the leaseholder who may have constructed on the land in pursuance of the leasehold interest - Neither r. 24 nor r. 25 cun be read to divest the authority of the element of discretion on whether to renew the lease - However, exercise of E F discretion must meet the touchstone of Art. 14 of the Constitution - 011 facts, order passed by the High Court cancelling the renewal of lease deed by the Development Authority in favour of appellant company-auction purchaser as also the conversion of leasehold right to freehold, does not call for interference - Public body acted oblivious to and in disregard of public interest - Land allotted to the company in liquidation was not for the purpose for which the appellant company stepped in - Purpose for allotment was for developing a residential colony for its employees, and not for commercial exploitation to a developer - There was no absolute or indefeasible right to renewal either in company in liquidation or in appellant-company which succeeded to the leasehold interest - G Development Authority chose to blink at its obligations by conferring a largesse on appellant-company - Mere acquisition by appellantcompany of the leasehold interest for the remainder of the term together with the benefits of the original lease covenants, did not ipso jure entitle appellant-company to renewal of the lease -As also H subsequent conversion of the land to freehold cannot enure to the 388 MIS AJAR ENTERPRISES PRIVATE LIMITED v. 389 SATYANARAYAN SOMANI benefit of appellant since the underlying basis of the entire A transaction stood vitiated by fraud - When public bodies are vested with control over land which was acquired for facilitating planned development, no authority can claim an immunity from its accountability to matters of public interest - Thus, the order passed by the High Court is upheld - However, rights created in favour of B third party purchasers of plots through execution of registered sale deeds by the appellant-company would not be disturbed - Madhya Pradesh Land Revenue Code, 1959 - ss. 181 and 182. UDA-Ujjain Development Authority granted leasehold rights to USO for a period of thirty years to construct residential houses. IISCO C was ordered to be wound up by the High Court. The Official Liquidator took over and auctioned the assets of the company, including the leasehold rights. The leasehold rights were purchased by the appellant company. UDA's case that it had cancelled its allotment and re-entered upon the land. However, UDA was not entitled to seek possession of the land from official liquidator. The appellant was assigned leasehold rights for D the residuary period. After expiry of the period, UDA renewed the lease agreement for another period of thirty years. Thereafter, leasehold rights were converted into freehold rights. The deed of renewal was challenged. The High Court cancelled the renewal oflease deed by UDA in favour of appellant company as also the conversion ofleasehold right to freehold; directed that the possession ofland be taken back; that in order to fetch the best price land be put to public auction; and that the transfer fee be charged on the basis of the guidelines for 2011-2012 and the differential be recovered with eight percent per annum. Hence the instant appeals. Disposing of the appeals, the Court HELD: 1.1 The Madhya Pradesh Nagar Tatha Gram Nivesh Vikasit Bhoomiyo, Griho, Bhavano Tatha Anya Sanrachanao Ka Vyayan Niyam, 1975 contain elaborate provisions for the transfer of government land vested in or maintained by the Town and Country Development Authority and in respect of other land. Rule E F 24 stipulates that every transfer of land has to be (subject to the G provisions contained in the Rules) by lease. Moreover, while rule 24 does contemplate a provision for renewal, the expression right of renewal by the lessor is of significance. The provision does not embody an absolute or indefeasible right of renewal. Undoubtedly, a development authority as a public body cannot H 390 SUPREME COURT REPORTS [2017] 8 S.C.R. A act arbitrarily or at its own whims, in deciding whether or not to renew the lease. Its decisions must be guided by public interest. Public interest postulates both protecting the interests of the authority and ensuring fairness to the leaseholder who may have constructed on the land in pursuance of the lease. Neither Rule B c 24 nor Rule 25 can be read to divest the authority of the element of discretion on whether to renew the lease. However, exercise of discretion must meet the touchstone of Article 14 of the Constitution. As a public authority, the decision must be fair, reasonable and guided by public interest. Under Rule 25, where the period of lease is thirty years, renewal is provided for two terms, each of thirty years subject to the payment of ground rent enhanced on the occasion of each renewal by an amount not exceeding fifty percent. Rules 24 and 26, read together indicate the extent of the enhancement in ground rent where the lease is renewed. [Para 34][415-B-Ff D 1.2 Under the terms of the lease, there was a prohibition on the transfer of the land unless the lessee, which had been granted the land to develop a colony and construct residential houses had done so. In the event that the lessee wished to transfer the land due to 'special circumstances', UDA could consider such a request subject to the payment of stipulated E transfer fees. The original lease agreement contemplated that the term of the lease could be renewed for two further periods, each of thirty years, with an enhancement of the lease rent at the time of every renewal. [Para 3711416-G-Hf F 1.3 A close reading of the clause for renewal would make it abundantly clear that there was no absolute or indefeasible right of renewal. The language contained in the clause for renewal indicates that parties contemplated that the term of the lease could on its expiry be renewed for two further terms each of thirty years. Rule 24 indicates that subject to the provisions of the G Rules, every transfer would be by way of lease; the lease would be either for thirty years or ninety nine years as determined by the authority which would be renewal by the lessor. Rule 25 posited, in the case of a lease for a term of thirty years, that there would be a right of renewal for two further periods each of thirty years subject to the payment of enhanced ground rent not H M/S AJAR ENTERPRISES PRIVATE LIMITED v. 391 SATYANARAYAN SOMANI exceeding fifty percent. A large tract of land admeasuring 43,407 A square metres was granted on lease to it with a specific purpose of constructing residential houses and for developing a colony, evidently for the benefit of the employees of IISCO. [Para 38][417-D-F; 418-F) 1.4 When UDA decided to renew the lease it proceeded on B the basis that after the decision of the High Court, it had no option but to renew the lease. Even before this Court, the submission of UDA is that once its objections were overruled by the High Court it had no option but to renew the lease. This submission betrays a lack of understating of the judgment of the High Court C as well as of the terms of the original lease. The judgment of the High Court made it abundantly clear both to the assignee who had successfully bid for the leasehold interest as well as to UDA that what was being transferred was the interest of the company liquidation under the lease deed dated 16.07.1985. Undoubtedly, this comprised besides the residue of the unexpired term of seven D years, the benefit of the original lease agreement which contains a renewal clause. However, both on the interpretation of that clause by the High Court as well as on the plain terms of the clause, it is evident that there was no indefeasible right of renewal. The clause for renewal provided that the lease could be renewed, not that it must or shall be renewed. Moreover, Rules 24 and 25 E cannot be read to preclude UDA, as the lessor, from having due regard to all relevant circumstances Maring upon the public interest while deciding whether to renew the lease. Several aspects bearing upon the public interest were required to be borne in mind. These included the fact that the purpose for which F the land was originally granted to IISCO namely the construction of a residential colony for the employees of IISCO could not be achieved by the appellant; whether the breach of the covenant~ contained in the lease agreement would disentitle the grant of renewal; the fact that the assignment of the land was to a private developer who was evidently intending to use it not for the original purpose for which the land was allotted to IISCO but for commercial development; the value of the land on the date when the renewal was sought; and that public interest would best be subserved by ensuring that UDA realised the best possible price .G for the land after following an open and transparent process. [Para H 392 SUPREME COURT REPORTS [2017] 8 S.C.R. A 4111419-D-H; 420-A-BI 1.5 The instant case does not fall into the category of that class of cases where a person or entity to whom the land is allotted in the first place has fulfilled the purpose of the allotment and seeks a renewal of the grant. For instance, where a person to B whom the land has been allotted for residential construction completes the construction and, upon the expiry of the term of the lease seeks a renewal of the lease, a distinct set of considerations will apply. Such an individual or a co-operative society of flat purchasers may legitimately contend that having due regard to the provisions contained in the lease document C and in Rules 24 and 25, it would be manifestly unfair to re-auction the land at the time of renewal. The instant case does not fall in such a category simply because the purpose for which the land was allotted to the company in liquidation was not the purpose for which appellant had stepped in. Appellant could not be oblivious D to the observations contained in the judgment of the High Court particularly when the clause for renewal in the original lease deed did not stipulate an absolute or indefeasible right of renewal. In taking the view that UDA had no option but to renew the lease, UDA has acted in a manner which betrays a total lack of E F understanding of its rights and of the trust placed in it as a custodian of public interest. UDA has acted in a manner that has ensured the conferment of a largesse upon the private developer in disregard of the public interest in ensuring the disposal of lands belonging to the authority in a transparent manner which ensures the realization of the best possible return. The renewal of the lease dated 10 May 2012 for a further term of thirty years from 20 December 2012 to 21 December 2042 was manifestly flawed. Once the renewal is seriously flawed and invalid, the conversion of the land to freehold would in consequence also be unsustainable. !Paras 42, 4311420-C-G; 421-G-HI G 1.6 The public interest litigation before the High Court was H instituted on 2 July 2013. By that date, the developer had on 10 May 2012 obtained a renewal of the lease for a period of thirty years and had applied for com·ersion of the land into freehold. UDA executed a deed for the conversion of the leasehold land to freehold on 12 July 2013. It is thereafter on 19 September 2013 MIS AJAR ENTERPRISES PRIVATE LIMITED v. 393 SATYANARAYAN SOMANI that appellant claims to have obtained approvals for construction A and development on the property. Even according to appellant, the third party transactions were entered into by it during the pendency of the writ proceedings before the High Court. The developer was aware of the pendency of the proceedings before the High Court and it is in this background that the claim of his B having created third party rights needs to be evaluated. Appellant tendered during the course of these proceedings, a summary containing the third party rights stated to have been created on the land in dispute. According to the statement, the total land available for sale is 24,688.06 square meters and the remaining area has to be developed for roads, open spaces, gardens and C services. The saleable area has been carved up into 178 plots. The position which appellant claims is that out of the 178 plots third party rights have been created in respect of 124 plots while 54 plots remain unsold; sale deeds have been executed in respect of 67 plots; agreements to sell have been executed in respect of D 20 plots; and allotments have been made in respect 37 plots. [Para 46)(422-D-H; 423-AJ 1. 7 The disclosures which have been made in the statement tendered on behalf of the developer indicate that the agreements to sell as well as the sale deeds were executed during the pendency of the writ proceedings before the High Court. Except E for eight sale deeds, the others have been executed after appellant-company was served with notice of the writ proceedings on 15 September 2014. The submission that from the statement produced by the developer on the record it emerges that even after the High Court reserved judgment, the developer continued to execute agreements to sell and sale deeds before the final judgment came to be delivered, is borne out from the statement which has been placed on the record by the developer. The developer executed agreements to sell in 2014, 2015 and even as late as January 2016 shortly before the High Court delivered its decision on 8 February 2016. Sixty seven sale deeds, of which details have been furnished on the record, indicate execution of F G the document of sale in 2014, 2015 and 2016. The summary indicates that of the sale deeds, as many as 21 were executed between November 2015 and February 2016 after judgment has been reserved and before it was delivered by the High Court. H 394 SUPREME COURT REPORTS [2017] 8 S.C.R. A There is an evident lack of bona fides on the part of appellantcompany. [Para 47][423-B-DI 1.8 Undoubtedly, disposal of natural resources by auction is not a mandatory principle for, individual statutes may provide for modalities of transfer by alternate modes which subserve B public interest. In the instant case, Rule 5 of the 1975 Rules provides four modalities: (i) direct negotiations; (ii) auction; (iii) inviting tenders; and (iv) concessional terms. Where the statute has provided for several modes of disposal, the choice among one of the available methods must facilitate the fulfilment of public C interest. That inter alia requires consideration being given to all aspects of the matter including the nature and value of the land, the purpose of the allotment and the need for the authority to generate funds to facilitate the objects for which it was constituted, such as planned development. The choice of one of a range of permissible choices can never be based on the anvil of conferring D an undeserved benefit on a commercial developer. The choice of methods is not left to the unbridled discretion of a public authority. Where a public authority exercises an executive prerogative, it must nonetheless act in a manner which would subserve public interest and facilitate the distribution of scarce natural resources in a manner that would achieve public good. Where a public E authority implements a policy, which is backed by a constitutionally recognised social purpose intended to achieve the welfare of the community, the considerations which would govern would be different from those when it alienates natural resources for commercial exploitation. When a public body is actuated by a F constitutional purpose embodied in the Directive Principles, the considerations which weigh with it in determining the mode of alienation should be such as would achieve the underlying object. In certain cases, the dominant consideration is not to maximize revenues but to achieve social good such as when the alienation is to provide affordable housing to members of the Scheduled G Castes or Tribes or to implement housing schemes for Below the Poverty Line (BPL) families. In other cases where natural resources are alienated for commercial exploitation, a public authority cannot allow them to be dissipated at its unbridled discretion at the cost of public interest. [Para 49][424-D-H; 425H A-Bl M/S AJAR ENTERPRISES PRIVATE LIMITED v. 395 SATYANARAYAN SOMANI 1.9 In the instant case, a public body has acted oblivious to A and in disregard of public interest. The land was originally leased out to IISCO, a subsidiary of SAIL (government undertaking). The purpose for allotting such a large tract of land admeasuring 43,407 square meters was to enable IISCO to construct and develop a residential colony for its employees. The land was not B being allotted for commercial exploitation to a developer. The terms of the lease clearly evince the manner in which the land was to be utilized and the consequences of breach. When IISCO went into liquidation, the Official Liquidator placed its assets including the leasehold land for sale. Appellant under the deed of assignment acquired the leasehold rights for the remaining term C of the lease on 1.09.2005 together with the rights and benefits arising out of the original lease of 16.07.1985. The High Court observed, while rejecting UDA's claim of forfeiture and re-entry, that the transfer was of the residual term of seven years and that if UDA did not intend to _renew the lease, the land would revert D to it. There was no absolute or indefeasible right to renewal either in IISCO or in appellant-company which succeeded to the leasehold interest. As a matter of fact, when UDA decided to renew the lease, it was duty bound to evaluate all aspects bearing upon the public interest which included the. purpose for which the land was granted under the original lease agreement; the E extent to which the purpose had been fulfilled; whether the original purpose underlying the grant of the land would be subserved by the renewal sought by a commercial developer; the market value of the land; the revenue which would be generated for the activities of UDA if the land would be transferred on commercial terms that would realise the best price. UDA choose to blink at its obligations by conferring a largesse on appellant-company. It did so on the hypothesis that after the High Court had rejected its objections to the assignment of the leasehold interest, it was precluded from doing anything other than to renew the lease. Clearly this was a misreading of the G judgment of the High Court. The issue as to whether the lease should be renewed was a matter distinct from whether the original assignment of the lease in favour of IISCO to appellant-company was valid. The mere acquisition by appellant-company of the leasehold interest for the remainder of the term together with H F 396 SUPREME COURT REPORTS [2017] 8 S.C.R. A the benefits of the original lease covenants, did not ipso jure entitle appellant-company to renewal of the lease. UDA was complicit in renewing the lease and granting an undeserved windfall on a commercial developer. Fraud, unravels everything. The subsequent conversion of the land to freehold in September 2013 B cannot enure to the benefit of appellant since the underlying basis of the entire transaction stands vitiated by fraud. There can be no manner of doubt about the principle which accepts the sanctity of contracts. Equally, no court can be a hapless spectator when a public authority forsakes the trust with which valuable resources such as land under its control are impressed. Land is a scarce C public resource. When public bodies are vested with control over land which was acquired for facilitating plann~d development, no authority can claim an immunity from its accountability to matters of public interest. (Para 50J (425-C-H; 426-A-E( 1.10 The direction of the High Court is not interfered to D the effect that the transfer charges for the deed of assignment of lease shall be determined on the basis of the guidelines prevailing in 2011-2012. There is no reason to interfere with the judgment of the High Court. However, in the exercise of jurisdiction under Article 142 of the Constitution the relief is suitably moulded so E F as to ensure the protection of persons with whom the developer has entered into registered sale deeds prior to the judgment of the High Court. This is done so after finding some weight in the equities asserted on behalf of this class of purchasers who have registered sale deeds in their favour against the payment of full consideration. They have taken loans from public financial institutions and have invested hard-earned earnings towards the plots which they have purchased. (Paras 51, 52((426-E-F, G-H; 427-AJ 1.11 All direction issued by the High Court is confirmed subject to the condition that the (i) rights which have been created G in favour of third party purchasers of plots through the execution of registered sale deeds prior to the date of the judgment of the High Court would not be disturbed. The benefit shall only extend to those cases found to be genuine on verification; and in respect of third parties (other than above) with whom there are no registered sale deeds, appellant-company shall refund the H . MIS AJAR ENTERPRISES PRIVATE LIMITED v. 397 SATYANARAYAN SOMANI consideration paid by the respective purchasers within a period A of three months together with interest at the rate of nine percent computed from the date on which payments were received. [Para 53][427-B-D) Re: Natural Resources Allocation (2012) 10 SCC 1 : [2012) 9 SCR 311 - referred to. B Case Law Reference [2012] 9 SCR 311 referred to Para 25 CIVIL APPELLATE JURISDICTION: Civil Appeal No.10852 of2017. From the impugned Judgment and final Order dated 08.02.2016 passed by the High Court of Madhya Pradesh, Indore Bench in Writ Petition (PIL) No.8199 of2013 WITH Civil Appeal No.10853 and 10854 of2017. Sh yam Divan, C. U. Singh, Ravindra Shrivastava, Sr. Advs., Senthil Jagadeesan, T. Srinavasa Murthy, Abhinav Malhotra, Ms. Shruti Iyer, Ms. Liz Mathew, Arjun Garg, Manish Yadav, Rohit Chandra, Advs. for the Appellants Ms. Kamini Jaiswal, Pranilv Sachdeva, Jatinder Pal Singh, Ms. Neha Rathi, Ms.Amiy Shukla, Samir Ali Khan, Ms. Sakshi Kakkar, C.D. Singh, T. Harish Kumar, Mishra Saurabh,Advs. for the Respondents The Judgment of the