Delhi State Industrial & Infrastructure Development Ltd v. C & S Electric Ltd

1. The respondent applied for conversion of leasehold property bearing no. 222, Okhla Industrial Estate, New Delhi -110020 admeasuring 2435 sq. yds to freehold property under the extant policy. The lessor DSIIDC states that the applicant was obliged to pay 50% of the unearned increase value of the property. The basis for the said demand was that there has been a change in the shareholding of the company. The said demand was impugned before this court in a writ petition (W.P.(C)6231/2013) which was allowed by the learned Single Judge vide order dated 22.02.2019 holding inter alia as under:- “...9. The issue whether a change in the shareholding warrants imposition of unearned increase was considered by the Coordinate Bench of this Court in M/s K.G. Electronics Pvt. Ltd. v. DSIIDC Ltd: W.P. (C) 2324 of 2013, wherein it was held that the guidelines in question do not provide for the payment of unearned increase in case of transfer of shares in a company and, therefore, the respondents are not entitled to claim unearned increase. It is relevant to note that in that case, the original promoters had divested 42.36% of the total outstanding share capital, out of which a substantial part was towards their respective spouses. The Court noted that 28.248% of the shares transferred by the promoters were held by non-family members. Indisputably, the petitioner’s case is on a better footing as only 10.23% of the shareholding is held by persons other than the original promoters.

10. It is also relevant to note that the aforesaid decision clearly rested on the principle that change in the shareholding of a company would not amount to transfer of its assets. It is relevant to note that the aforesaid decision was carried on in an appeal by the respondents before the Division Bench of this Court in LPA 391 of 2014 captioned Delhi State Industrial & Infrastructure Development Corporation Ltd. v. M/s. K.G. Electronics Pvt. Ltd. & Anr. The said appeal was rejected by a judgment dated 07.11.2014. In its decision, the Division Bench had also referred to the decision of the Constitution Bench of the Supreme Court in Mrs. Bacha

SC 74, wherein the Supreme Court had authoritatively held that the identity of the company was not the same as that of its shareholders and, consequently, the dividends declared by the company out of agricultural income in the company’s hands were not in the nature of agricultural income in the hands of its shareholders.

11. In view of the above settled law, the demand for unearned increase by the respondent is unsustainable, as there is no transfer of the property in question. The impugned communication is, accordingly, set aside...”

2. DSIIDC was also directed to process the petitioner’s application within a period of 08 weeks from the date of the said order. The appellant has impugned the order for the reason that under the policy dated 11.10.2013 for conversion of the leasehold property into freehold, the applicant’s application falls in Category 3 of the policy and Clause 4 thereof reads as under:

3. In support of its contention, DSIIDC relies upon clarificatory orders issued by the DDA pursuant to advice sought from DDA about a decade earlier on 13.12.2004 to the following effect:- “In partial modification of office order no LSA/I(6)87/Policy case/ Unearned increase dated 6th September, 1988, it has been decided vide approval of Hob’ble Lt. Governor of Delhi dated 20.10.2004 in file no F.64(6)2004/CL/PI(Commercial Land Branch) to modify para 1(d) of the instructions contained in the above order as under:- “1(d) in case of change of status from a Private Limited Company to Public Limited Company, change of status may be permitted without liability to pay UFL, provided there is no change in the pattern of shareholding and the application is made within one year of the purchase of the property from DDA and or before execution of the lease deed whichever is earlier. This issue with the approval of Vice Chairman, DDA”

4. Reliance is also placed on another clarification which was issued to the DDA from L&DO, Ministry of Urban Development, Government of India on 24.01.2006 which reads as under:- “I am directed to refer to your D.O. letter No.F:100(34)03/03/74-II dated 14.1.2005 on the subject cited above and to say that the matter has been examined with reference to the policy approved by the Cabinet. The approved policy allows conversion in the name of a person other than the recorded lessee only in the cases where the applicant is a registered GPA holder of the recorded lessee accompanied by agreement to sell. In all other cases including where the share in the property has changed bands by way of change of constitution of the firm/company or by virtue of transfer of share outside family members etc., such transfers are to be regularised through formal mutation as per the normal procedure. Therefore, it may not be appropriate to allow conversion of such cases by recovering surcharge as in the case of GPA holders.

2. However, the suggestions contained in the said letter is under consideration of the Ministry for examining the feasibility or modifying the existing conversion policy. However, it may be confirmed that the conversion applications have to be dealt with in accordance with the prevailing policy and accordingly the applications if any under the above mentioned categories may be disposed of/settled in accordance with the prevailing policy.”

5. Mr. Jayant Mehta, the learned Senior Advocate for the respondent submits that in the first instance, the clarificatory orders issued to the DDA on 13.12.2004 and 24.01.2006 are apropos land conversion policy of DDA. The said letters are not addressed to DSIIDC which is a separate entity. Secondly, both these aforesaid communications relate to sale of the property in the context of transfer of shares of a firm/company (the leaseholder) to persons outside the family. Therefore, the unearned increase was leviable only in cases where there was a transfer of shareholding beyond the family which amounted to a sale or transfer.

6. In the present case, the applicant has not sold the leasehold property. Only 9.52% of shareholding of the lessee had been transferred to a private investor, which too, during the pendency of these proceedings, has been bought back. Presently, only 0.71% of the shareholding is with the public which makes no impact on the control or management of the company and definitely it is of no consequence to the assets of the company. The identity of the company remains intact, its shareholding remains intact and most importantly, the property was never subject to any sale nor were any interests in it promised or agreed to be transferred. Conceptually, the unearned increase is only when the property is sold or proposed to be sold. This court in DDA vs. Mahabir Prasad and Sons & Anr., 2009 SCC OnLine Del 4010 held inter alia as under:- “…21. We concur with the view taken by the learned Single Judge that unearned increase as a jural concept requires a sale, for the reason, without a sale what would be the measure to determine the increase in the price of the land? Obviously none.

22. What is the concept of an unearned increase? Where land is allotted at a concessional rate and later on is sold at the market rate, the differential premium paid vis-à-vis the sale price would be the unearned increase. Thus, “No sale- No unearned increase”.

23. That apart, even the other reasoning of the learned Single Judge is sound. The definition of family members includes husband/ wife, father, mother, sister, brother, son, daughter, grand-son, grand-daughter, daughter-inlaw and the wife of the grand-son as also the son-in-law and the husband of the grand-daughter as a family member.

24. The definition goes on to include all heirs defined in law to succeed to the interest of the allottee. In the case of male Hindus, it would include the children of the predeceased brother and sister, if the allottee would have no Class-I heir.