M/s. PVP Star Hotels Private Limited v. The State of Maharashtra & Ors.

5.1) Mr. Sathe submitted that, therefore, in the first application dated 29.11.2012 itself, the Petitioners requested for extension of time to fulfill the contract and relaxation in payment of the additional lease premium. As that application was not decided on time, the Petitioners were constrained to give more letters. Finally, the Respondent No.2 decided the said issues in the impugned the Order dated 31.07.2017. The said Order was then modified by the Order dated 13.11.2017. He submitted that, the aforesaid facts and circumstances indicate that, unreasonable time was consumed by the Respondent to decide the said issues, for which the Petitioners cannot be blamed.

5.2) Mr. Sathe submitted that the Respondent No.2 extended the time to fulfill the contractual obligations as reasonable case was made out for the same by the Petitioners. However, the Respondent No.2 unnecessarily imposed the liability to pay the additional lease premium and to furnish the Bank Guarantee of Rs.[5] Crore. However, the Respondent Nos.[2] and 3 withdrew the Orders dated 31.07.2017 and 13.11.2017 and took the possession of the suit plot without giving a chance of hearing. Thus, the said entire action is arbitrary and illegal.

5.3) Mr. sathe urged that the subject Agreement cannot be terminated, without having regard to the conduct of the respective parties towards fulfillment of their obligations under the said Agreement and also towards the fulfillment of the obligations and/or representation based on which the Agreement was executed. He submitted that in the present case, the Respondent No.2 CIDCO Ltd. itself has miserably failed and/or neglected to ensure the implementation, execution and or completion of various projects, especially the international Airport and connected projects based on which the scheme was issued and the Agreement was executed. The terms of the said scheme document were mentioned in the letter of allotment and based on the same, the Agreement was executed. He asserted that, thus, there was a direct link between the execution and completion of various projects within time as mentioned in the scheme document of the CIDCO and completion of the Star Hotel by the Petitioner No.1. He submitted that, in similar circumstances the Respondent No.2 has invariably granted extension of time limit without imposing additional lease premium and/or without imposing condition of furnishing a Bank Guarantee. He submitted that, in the Order dated 31.07.2017 the Respondent No.2 agreed with the submission by Respondent No.3 that the Respondent No.2 has a policy of granting extension of time for a maximum period of 12 years beyond the initial period mention in the Agreement. Accordingly, the subject Agreement, which expired on or around 13.12.2012, was extendable up-to 2024, by putting conditions on the Petitioners to complete the Star Hotel project within a time, but without asking for additional lease premium and executing a Bank Guarantee of Rs.[5] Crore.

5.4) Mr. Sathe submitted that in the Order dated 31.07.2017, the Respondent No.2 observed that the market condition was very bad and in fact, when the CIDCO Ltd. floated tenders for three other plots, no response was received by the CIDCO Ltd. and therefore, it was also felt by the CIDCO Ltd. that when there is no buyer in the market, then in place of terminating the present agreement, it would be better to earn the additional lease premium by retaining the Agreement. This indicates that, the Respondent No.2 has abused its position in the circumstances. He submitted that, the lease premium was a foreign direct investment, therefore, calling back the Agreement set a bad precedent.

5.5) Mr. Sathe submitted that the Respondent Nos.[2] and 3 are covered by the definition of the ‘State’. However, before eviction of the Petitioners from the suit plot, the procedure stated in the Maharashtra Government (Premises) Eviction Act, 1956 was not followed. Therefore, the Order and action of taking possession of the suit plot by Respondent No.3, is illegal.

5.6) To support his submission Mr. Sathe relied upon a decision in Joshi Technologies International Inc. vs. Union of India & Ors.[1] therein in paragraph 70.[7] the Hon’ble Supreme Court held that, “Writ can be issued where there is executive action unsupported by law or even in respect of a corporation there is denial of equality before law or equal protection of law or if it can be shown that action of the public authorities was without giving any hearing and violation of principles of natural justice after holding that action could not have been taken without observing principles of natural justice.”

6) Mr. Hegde, the learned Senior counsel for Respondent Nos.[2] and 3, on the other hand, emphatically submitted that, the petitioners failed to abide by the terms and conditions stated in the Agreement. However, considering the circumstances pointed out by the petitioners, the Agreement period was extended by imposing additional lease premium. Yet the petitioners created a dispute about quantification of the additional lease premium, relaxation in payment of the additional lease premium up-to 13.11.2017 and to withdraw the condition of furnishing the Bank Guarantee. In this regard whatever case was put up by the Petitioners, it was baseless or having no foundation. Therefore, the Respondent Nos.[2] and 3 were compelled to withdraw the Orders dated 31.07.2017 and 13.11.2017 and take possession of the suit plot. Therefore, said action of the Respondents cannot be termed as arbitrary,

1. (2015) 7 SCC 728. illegal or violation of law. To buttress his submissions Mr. Hegde cited the following decisions.

(i) Sesa Sterlite Ltd. vs. State of Maharashtra and Another[2], therein the Petitioner could not proceed with the original project stated in the Agreement due to certain circumstances. Therefore, he proposed an alternative project. More than sufficient time was granted to the said Petitioner to consider undertaking the alternate project. Though the Petitioner stated that it desired to set up the alternate project, no effective steps in that direction were shown to have been taken. The Petitioner did not seriously consider undertaking any other alternative project. Therefore, the Division Bench of this Court declined to interfere with the decision to terminate the subject Development Agreement, passed by the statutory authority concerned.

(ii) Jaipur Vidyut Vitran Nigam Ltd. vs Mb Power (Madhya

Pradesh) Limited[3]. In this decision the Hon’ble Supreme Court referred the decision of the Madras High Court in Air India Ltd. vs. Cochin International Airport Ltd.[4] and noted the following observations in paragraph 7 thereof:- “7. … The award of a contract, whether it is by a private party or by a public body or the State, is essentially a commercial transaction. In arriving at a commercial decision considerations which are paramount are commercial considerations. The State

2. (2024) 2 AIR Bom R 625.

3. (2024) 8 SCC Bom 513.

4. (2000) 2 SCC 617. can choose its own method to arrive at a decision. It can fix its own terms of invitation to tender and that is not open to judicial scrutiny. It can enter into negotiations before finally deciding to accept one of the offers made to it. Price need not always be the sole criterion for awarding a contract. It is free to grant any relaxation, for bona fide reasons, if the tender conditions permit such a relaxation. It may not accept the offer even though it happens to be the highest or the lowest. But the State, its corporations, instrumentalities and agencies are bound to adhere to the norms, standards and procedures laid down by them and cannot depart from them arbitrarily. Though that decision is not amenable to judicial review, the court can examine the decisionmaking process and interfere if it is found vitiated by mala fides, unreasonableness and arbitrariness. The State, its corporations, instrumentalities and agencies have the public duty to be fair to all concerned. Even when some defect is found in the decisionmaking process the court must exercise its discretionary power under Article 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point. The court should always keep the larger public interest in mind in order to decide whether its intervention is called for or not. Only when it comes to a conclusion that overwhelming public interest requires interference, the court should intervene.”

7) In Joshi Technologies (supra) the Hon’ble Supreme Court noted that, “… there is no absolute bar to the maintainability of the writ petition even in contractual matters or where there are disputed questions of fact or even when monetary claim is raised. At the same time, discretion lies with the High Court which under certain circumstances, can refuse to exercise.”

7.1) In the above context, the Hon’ble Supreme Court noted the following observations from a decision in ABL International Ltd. vs. Export Credit Gurantee Corpn. Of India Ltd.5, in paragraph 28 thereof.

8) Looking at the settled position of law in the field and the

5. (2004) 3 SCC 553. rival submissions, what is significant in this case is, conduct of the Petitioners and the Respondents. Undisputedly, the Petitioner No.1 has paid the entire lease premium of Rs.82,70,46,900/- and Misc. Charges of Rs.5,25,350/. The Agreement was registered on payment of stamp duty of Rs.4,13,54,500/- and regn. charges of Rs.30,000/-. Thereafter, within a reasonable time the Petitioners proceeded to obtain different statutory prior permissions which were essential to hit the ground and start the elementary work related to construction of the subject hotel, in conformity with law and the Agreement. On getting such approvals, the Petitioners started the ground activities. The Petitioners claimed that, post Agreement they have incurred about Rs.25 Crore in the ground activities and the development related works. This assertion is not denied by the Respondents. Thus, the total amount invested was more that Rs.100 Crore. Since the payment of the Lease Premium and Misc. charges, the Respondent Nos.[2] and 3 have been using that entire amount without paying any interest. It is thus clear that, on account of the delay on the part of the Petitioners, they have not gained any pecuniary benefit against the investment of more than Rs.100 Crore.

9) As per the agreed terms and conditions in the Agreement, the Petitioner No.1 was duty-bound to obtain the development permissions within six months, commence the hotel construction within a period of 12 months and obtain the Occupancy Certificate within a period of 5 years from the date of the Agreement. The Petitioners, however, did not comply with the said conditions. To subside this default, the Petitioners came with a specific plea that, after the Agreement there was slowdown in the economy, leading to stalling of development activities across sector, especially in infrastructure and construction areas. Consequently, the proposed projects in Navi Mumbai including the International Airport and the connected projects saw delay of few years in its implementation. Said projects in Navi Mumbai, especially those projects mentioned by the Respondent No.2, were vital for the development of the suit plot as the suit plot has been located very close to the location of the Airport etc. In view thereof, the ability of Petitioner No.1 to complete the development within time was frustrated. We have noted that, neither this assertion is specifically denied nor sufficiently challenged by the Respondent Nos.[2] and 3. Needless to mention that since decades stared hotels are spread over across Mumbai city and nearby areas. Therefore, in the impugned Order dated 31.07.2017 the Respondent No.2 should have explained as to how the non-commissioning of the hotel in the agreed period affected the economic development of the city and the larger public interest. However, said Order is conspicuously silent about this aspect. As such, we are not in unison with the submissions made by Mr. Hegde, the learned counsel that, the delay on the part of the Petitioners in completing the hotel project acted against the objective of the scheme and interest of Respondent No.2 thereunder.

9.1) The Order dated 31.07.2017 recorded that, “recently the Corporation (Respondent No.2/3) had invited for applications to sale of its three plots admeasuring 12,588.61 sqms., 16,055.97 sqms. and 10,000/- sqms. The last date for submission of the application was 06.07.2017. However, there was no response to the said marketing of the scheme.” Therefore, the authority who passed the said Order got inclined to extend the period of the subject Agreement instead of terminating the allotment and inviting new applications for the same. Surprisingly, this was the situation even after 10 years of the subject Agreement and after 5 years of the letter dated 29.11.2012 whereby the Petitioner No.1 had requested to extend the time of the Agreement. The suit plot is also admeasuring 10377.50 sqms. Thus, said fact supports the case of the Petitioners that, although huge development was planned and expected under the scheme, immediately it could not attract investors and fructify as intended. Therefore, it is clear that, the Respondent No.2 itself did not want to frustrate the purpose of its own scheme by calling back the Agreement as it would have adversely affected its own interest.

10) Additionally, we note that, by delaying the hotel project the Petitioners have not gained any pecuniary or any other advantage against the Respondent No.2 because it was impossible to construct the said hotel in the year 2017 or within three years thereafter at the costs estimated for the initial period of 5 years during which the hotel was to be completely constructed. On the contrary, by that time, the said cost was considerably increased, roughly 2 to 3 times of the initial estimated cost. The impugned Order dated 31.07.2017, however, did not give any consideration to this aspect of the matter.

11) Considering the reasons stated in the Order dated 31.07.2017 for extension of the time of the Agreement, it appears that there is no certainty of getting an investor if the Corporation/ Respondent No.2 again invites applications for the suit plot for the intended development there. The Petitioners averred that, there is a foreign direct investment in this project. Attracting such investors is more beneficial for the cities like Mumbai as its helps generating income for the State and providing employment opportunities. Therefore, there was no point in cancelling the Agreement and taking possession of the suit plot by the Respondents.

12) No doubt, from the record it appears that the Petitioners unnecessarily spent time in seeking exemption from paying additional lease premium towards extension of time from time to time. However, according to us it was an error on the part of the Petitioner No.1 in not paying the said amount because it did not allure to the benefit of the Petitioners and as matter of fact, they suffered substantial loss for it.

13) Record indicates that, the letter dated 29.11.2012 was the first attempt by the Petitioners to get an extension of time to fulfill their obligations under the Agreement. This application has been decided on 31.07.2017 i.e., after more than 4½ years of its submitting. We could not see any forcing reason to record that, the decision on the said letter delayed due to certain unreasonable conduct of the Petitioners or latches on their part.

14) The Order dated 31.07.2017 noted that, the Corporation has a policy for extension in construction period, as per BR No.11628 dated 06.05.2016, whereby extension can be granted for a maximum period of 12 years beyond initial 4 years, on payment of additional lease premium. However it is noted that, the request seeking such an extension can be considered only for reasons beyond control of the licensee, entirely at the discretion of the Corporation and extension of time cannot be demanded by the licensee as a matter of right.

14.1) However, from the discussion in the forgoing paragraphs we are of the considered views that the said discretion has not been fairly exercised by the Respondent No.2/CIDCO. Because firstly, the CIDCO was struggling to get investors for its own scheme. Secondly, there was no certainty of getting new investor in a reasonable time to develop the suit plot post its re-auction. Thirdly, the Petitioners have invested more than Rs. 100 Crore in the project and have not earned any return thereon. Fourthly, the delay in implementing the Agreement in a time bound manner did not allure to the benefit of the Petitioners, on the contrary they will have to spent multiple times of the construction cost for the hotel estimated initially. Therefore according to us, the Respondent No.2 could have extended the time one more time. But at the same time, the Petitioners should have paid the additional lease premium for the delay in commissioning the hotel without any excuse.

15) Considered the settled law in the field, it is apparent that any statutory authority while exercising the delegated powers of the State, must be cautious that such an exercise of powers is not arbitrary in nature not only from the point of view of the person against whom said powers were exercised but also from the view point of the State which has given the authority to exercise said powers. In either of the case, an Order resulting from the exercise of such powers would be arbitrary. In the case in hand, the impugned Orders are arbitrary in respect of both the sides, even if the said Orders appear to have been passed in favour of the State because it is failing in securing the interest which was intended to be protected. Out of the three years extension period, 7/8 months were covered by COVID-19 Pandemic. As such, we are of the view that equities are necessary to be balanced in this case.

16) At the end of the hearing Mr. Sathe, the learned Senior counsel, on instructions made a statement that the Petitioners undertake to pay all the necessary amounts to the Corporation and to construct the hotel within three years period or as may be directed by this Court. Considering the facts and circumstances of the case we hereby accept the said statement on record.

17) In view thereof the impugned Orders are liable to be set aside with a direction to restore the possession of the suit plot with the Petitioners. However, for not paying the additional lease premium Rs.16,91,56,705/-, the Petitioners are liable to pay a reasonable interest on the said amount, because according to the Petitioners said amount should be totaling to Rs.12,40,56,975/- and even that amount is not paid. Further, the Petitioners shall be duty bound to construct the hotel in three years period as directed hereinafter. Thus, the Petition succeeds.

1) The impugned Show Cause Notice dated 30.09.2016, Termination Notice dated 24.04.2017, Order dated 31.07.2017, the Demand Notice/Order 02.01.2018 and the Termination Notice/Order dated 02.04.2018 issued by Respondent Nos.[2] and/or 3, are set aside and substituted as under. i) The Petitioner No.1, i.e., M/s. PVP Star Hotels Pvt. Ltd. shall be granted waiver of additional lease premium for the period from dated 14.12.2012 to 01.07.2016. ii) The Petitioners shall complete all the requirements and take all the permissions necessary to construct the Star Hotel at the suit plot as per the Agreement and complete the construction of the hotel and obtain the Occupancy Certificate within a period of three years from the date of receiving possession of the suit plot from the Respondent Nos.[2] and/or 3, as stated by the Petitioners and noted in the forgoing paragraph 16. iii) The aforesaid extension of three years time is subject to a condition that the Petitioners shall pay the additional lease premium of Rs.16,91,56,705/- for the period from 01.07.2016 to 30.06.2018, to the Respondent No.2 within four months from the date of this Order alongwith interest thereon from date 01.07.2018 till the date of this Order, as per the Rules and/or Regulations of the Respondent No.2/CIDCO. iv) Petitioners shall also furnish the Bank Guarantee of Rs.[5] Crore of any nationalized bank. If the Petitioner No.1 produces the Building Completion Certificate/Occupancy Certificate within the given time frame, the Bank Guarantee shall be returned back to the Petitioner No.1 and in case of any default, the Bank Guarantee shall be forfeited by the Respondent Nos.[2] and/or 3. Said Bank Guarantee to be furnished within the said four months period. v) On making the payment of Rs.16,91,56,705/- and furnishing the Bank Guarantee as above within the said four months period, the Respondent Nos.[2] and 3 shall execute the modified Agreement to Lease and handover the possession of the suit plot to the Petitioners. vi) In the event of the Petitioners failing in complying with the aforesaid directions, this Order shall stand vacated and the Termination Notice/Order dated 02.04.2018 issued by Respondent No.3, which is impugned herein, shall stand automatically restored, without reference to this Court.

2) Petition is allowed in the aforesaid terms. Rule is accordingly made absolute.

3) In view of disposal of the Petition, Interim Application Nos.4369 of 2023 and 7943 of 2023 do not survive and both the Applications are accordingly disposed off. (SHYAM C. CHANDAK, J.) (A.S. GADKARI, J.)