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Delhi Development Authority v. Nalwa Sons Investment Ltd.

Civil Appeal · 2019 INSC 564Decided 24 Apr 2019
Civil Appeal No. 4260 of 2019
Justice A.M. Khanwilkar · Justice Ajay Rastogi

Background

DDA had allotted a commercial plot in Bhikaji Cama Place, New Delhi on a perpetual lease to Jindal Strips Limited (later respondent No.1) in 1993. The lease deed required the lessee to get DDA's prior written consent before any transfer, and to pay 50% of the "unearned increase" (the rise in the plot's value) if it did so. Jindal Strips underwent a corporate demerger approved by a Company Court, under which the plot's undertaking was transferred to a new company, Jindal Stainless/Nalwa Sons Investment Ltd. (respondent No.2), without DDA's consent and without paying any unearned increase. When DDA later demanded 50% unearned increase and the respondents challenged this demand in the High Court, a Division Bench ruled in the respondents' favour, holding the demerger was not a "transfer" attracting the lease clause; DDA appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that a transfer of the leased property pursuant to a scheme of demerger sanctioned by a Company Court still qualifies as a "transfer" within the meaning of clause 6(a) of the lease deed, triggering the lessee's obligation to seek DDA's prior consent and pay 50% unearned increase. It rejected the argument that no consent or payment was needed merely because the same group of directors/shareholders controlled both the original lessee and the new transferee company, or because the transfer was without monetary consideration: the plain language of the lease clause applied regardless. The Court set aside the Division Bench's judgment and restored the Single Judge's order that had dismissed the writ petition and upheld DDA's demand, with no order as to costs.

Lesson Learnt

A lease clause requiring payment on "transfer" of the leased property can apply even to transfers that happen through a court-approved corporate restructuring (like a demerger) rather than a straightforward sale, restructuring a company does not automatically exempt it from contractual obligations tied to ownership transfer of leased land.

Official source (sci.gov.in)View Judgment (PDF)

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