Kar.Indust.Areas Dev.Board & Anr vs M/S Prakash Dal Mill & Ors

E

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 5406-5445 OF 2005

Karnataka Industrial Areas

Development Board & Anr. .. Appellants

VERSUS

M/S Prakash Dal Mill & Ors. ..Respondents

J U D G M E N T

SURINDER SINGH NIJJAR, J.

1. The instant appeals are preferred against the final

order and judgment of the High Court of Karnataka

at Bangalore in W.A. Nos. 2183 to 2221 of 2000 &

W.A. No. 1492 of 2000 dated 18th February,

2003 whereby the Division Bench of the High Court

allowed the writ appeal by setting aside the

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judgment of the High Court in W.P. Nos. 23578 to

23617 of 1999 dated 7th July, 1999.

2. We may now briefly notice the relevant facts which

are necessary for the adjudication of the present

case. The Karnataka Industrial Areas Development

Board (hereinafter referred to as `appellant No.1)

had formed an industrial layout at Tarihal village in

the year 1983, pursuant to which, it invited

interested purchasers to make applications for

allotment of industrial sites. Pursuant to the same,

the respondents herein, applied for the allotment of

sites. It is a matter of record that the respondents

had applied for the allotment of sites at different

points of time. Consequently, the appellant issued

letters of intent, indicating that it had resolved to

allot all respondents the sites shown in their cause

titles at Tarihal Industrial Estate. The said letter

also indicated the tentative price at which the land

was sought to be allotted.

2 3. In response to the offer made by the appellant No.1,

the respondents being desirous of purchasing their

respective plots indicated their willingness for the

abovementioned site. Accordingly, they affirmed

their interest to purchase the same. Thereafter, the

letters of allotment were issued in favour of the

respondents incorporating the terms and conditions

of allotment. Subsequent thereto, lease-cum-sale

agreements were executed in favour of the

respondents on their complying with conditions of

allotment.

4. One of the conditions mentioned in the lease-cum-

sale agreement reads thus:-

"7(b) As soon as it may be convenient the

Lessor will fix the price of the demised

premises at which it will be sold to the Lessee

and communicate it to the Lessee and the

decision of the Lessor in this regard will be

final and binding on the Lessee. The Lessee

shall pay the balance of the value of the

property, if any after adjusting the premium

and the total amount of rent paid by the

Lessee, and earnest money deposit within one

month from the date of receipt of

communication signed by the Executive

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Member of the Board. On the other hand, if

any sum is determined as payable by the

Lessor to the Lessee after the adjustment as

aforesaid, such sum shall be refunded to the

Lessee before the date of execution of the sale

deed."

5. The lease-cum-sale agreement, entered into between

the Board and the respondents, contained

covenants that the respondents shall pay 99% of

the allotment price immediately and remaining 1%

in 10 equal yearly installments plus lease premium

alongwith the interest at 12.5%. The respondents

claim to have complied with all the stipulations and

the conditions incorporated in the lease-cum-sale

agreements. It seems that the appellants even after

a lapse of 11 long years did not execute the regular

sale deeds in favour of the respondents. On the

contrary, the appellants after a gap of 6 months

from the date of expiry of the lease period, issued

letters to the respondents, raising therein the

demands with regard to the final allotment price

and also directed the respondents to pay the

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balance of final allotment price within a stipulated

period. The appellants vide its Board meeting dated

18th September, 1997 resolved to fix the final price

of the land as follows:

Allotment made at the Basic final prices

basic tentative rates as fixed per acre (in Rs.)

per acre (in Rs.)

1. 40,000/- 1.08 lakhs

2. 60,000/- 1.27 lakhs

3. 1.00 lakh to 1.25 lakhs 2.01 lakhs

4. 1.50 lakhs to 1.60 lakhs 2.61 lakhs

6. On receipt of the aforesaid demand, respondents

filed their objections individually putting forth their

grievances and declined to pay the increased

amount. It was contended by them that the final

allotment price was unreasonable, arbitrary, unjust

and contrary to what was legitimately expected and

assured by the appellant, i.e., only marginal

increase, based on the cost of land acquisition.

Pursuant to the objections filed individually by the

respondents, the appellant invited them to

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Bangalore for a discussion. According to the

respondents, during the course of discussions, they

had sought for the detailed break up, based on

which the enhanced claim was made. The board

had furnished them a statement showing the basis

for enhancement of the price. In the break-ups

statement, as provided by the appellant, it was

shown that Rs.34.17 lakhs were indicated to be the

cost of future development. The respondents having

expressed their inability to pay the hiked prices,

once again brought to the notice of the appellants

that the proposed enhancement was unjust and

arbitrary. Thereafter, the appellant No.1, on

consideration of the objections raised by the

respondents reduced the final allotment price

marginally and issued demand notices to the

respondents as follows:

Basic final prices fixed Reduction in the final

in the meeting held on prices approved

18.9.1997 (Rs. in lakhs)

1. 1.08 lakhs 0.95 lakhs

2. 1.27 lakhs 1.10 lakhs

3. 2.01 lakhs 1.80 lakhs

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4. 2.61 lakhs 2.40 lakhs

7. Aggrieved by the same, the respondents filed a writ

petition W.P. No. 23578-23617 of 1999 before the

High Court of Karnataka at Bangalore and prayed

for a writ in the nature of certiorari for quashing the

letters enhancing the price and for a direction to the

appellant to execute the sale deeds on the basis of

the price indicated in the lease deed. The High

Court in its judgment dated 7th July, 1999

dismissed the writ petition. The Division Bench of

the High Court in writ appeal vide its final order and

judgment dated 18th February, 2003 allowed

the same and quashed the enhanced demands as

proposed by the appellant. Hence the instant

appeals by special leave before us.

8. We have heard the learned counsel for parties.

Ms. Kiran Suri, learned counsel appearing for the

appellants submits that the High Court committed a

grave error in holding that Clause 7(b) of the

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lease-cum-sale agreement doesn't confer power on

the appellants to revise or alter the tentative price.

She submits that the appellant No.1 is an industrial

board established for the purpose of establishment

of industrial areas. Section 13 of the Karnataka

Industrial Areas Development Board stipulates

functions of the Board which includes establishing,

maintaining, developing and managing industrial

estates within industrial areas. Thus, power of

fixation of price of the land vested with the

appellant.

9. She further submits that enhanced price was fixed

after taking into consideration, the cost of

acquisition, the development expenditure, statutory

charges and interest. The price fixed at the time of

the allotment was only tentative since the

appellants could not foresee the quantum of land

acquisition compensation that would be fixed in

future. The price so fixed was uniform to all

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allottees. She further submits that the High Court

was not right in holding that the allottees of the site

in one industrial area cannot be regarded as

persons belonging to same class. The final price

fixed was much less than the actual market price

and hence the High Court erred in holding that it

was arbitrary, unjust and unfair. The appellant

No.1 was entrusted with the responsibility to

develop the industrial area as a whole and it had

nothing to do with any class of allottees. She also

submitted that the present matter was not one of

escalation of price but the fixation of the final price.

10. Learned counsel further submitted that the final

price fixation is in accordance with the allotment

letters issued to the respondents. As per the

allotment letter, the tentative price of the land had

been fixed at Rs.40,500/- per acre in Tarihal

Industrial Area. The allottees were to exercise

option with regard to the mode of payment of the

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purchase price. The letter clearly indicated that the

price was only tentative. The final price was fixed

taking into account the cost of acquisition,

development expenditure, statutory charges and

interest. On the basis of the above criteria, the cost

of land per allotable acre worked out approximately

to 2.61 lakhs per acre. Therefore, the break-ups of

the same was as follows:-

Rs. in

Lakhs

a) Cost of acquisition 0.20

b) Development expenditure:

Already incurred (as on 31.12.96) 0.88

Future development (as estimated 0.98

on 31.12.96)

c) Statutory Charges: 0.23

d) Interest 0.32

2.61

Therefore, keeping the above cost per acre as the basis,

the appellant Board, at its Board Meeting dated

18th September, 1997 resolved to fix the final price of the

lands as follows:-

Allotment made at the Basic final prices

basic tentative rates as fixed per acre (in Rs.)

per acre (in Rs.)

1. 40,000/- 1.08 lakhs

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2. 60,000/- 1.27 lakhs

3. 1.00 lakh to 1.25 lakhs 2.01 lakhs

4. 1.50 lakhs to 1.60 lakhs 2.61 lakhs

11. According to the learned counsel, the aforesaid

exercise carried out by the Board would clearly

indicate that the decision has been taken upon

consideration of all the relevant parameters for

determination of the final price. Learned counsel

further submitted that the respondents have

wrongly claimed that they had been allotted plots in

fully developed area. The development work had

just begun in 1982. These allotments have been

made at a heavily subsidized rate. The final price

has been fixed to put all allottees at par, irrespective

of the date, area/phase/segment of the allotment.

The development costs had been worked out as a

whole and the allottees had not been segregated

into separate groups. The respondents having

voluntarily entered into lease agreement can not

now be permitted to question the power of the

Board to fix the final price. She relied on Premji

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Bhai Parmar & Ors. Vs. Delhi Development

Authori ty & Ors.1 and Centre for Public Interest

Litigation & Anr. Vs. Union of India & Ors.2 .

12. The learned counsel further submits that it is a

settled proposition of law that price fixation is

beyond the scope of judicial review in writ petitions.

The High Court, therefore, exceeded its jurisdiction

in allowing the writ appeal in favour of the

respondents. She relied on the judgment of this

Court in the case of Meerut Development

Authority Vs. Association of Management

Studies.3 She then brought to our notice that if the

impugned judgment prevails then it would cause a

loss of Rs.1,66,000/- for allotment of every acre.

13. On the other hand, Mr. Basava Prabhu S. Patil,

learned senior counsel appearing for the

respondents submitted that the allotment letters

1 (1980) 2 SCC 129

2 (2000) 8 SCC 606

3 (2009) 6 SCC 171

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have been issued by the appellant Board in exercise

of its powers under Section 41 of the Karnataka

Industrial Area Development Act, 1966. Section 41

empowers the Board to make regulations consistent

with the Act and the Rules made there under, to

carry out the purposes of this Act. Sub-section

41(2) provides that the Board can make regulations

with regard to "(b) the terms and conditions under

which the Board may dispose of land". In exercise

of this power, the Board has framed Karnataka

Industrial Area Development Board Regulations,

1969. Under Regulation 7, the Board has to notify

the availability of land for which applications may

be made by the intending purchaser. The notice

has to specify the manner of disposal, the last date

for submission of application and such other

particulars as the Board may consider necessary in

each case by giving wide publicity through

newspapers, having circulation in and outside

Karnataka State. Upon receipt of the applications,

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the allotment letter has to be issued in terms of

Regulation 10. According to the learned senior

counsel, the exercise of power with regard to the

fixation of price by the Board has to be within four

corners of the aforesaid statutory provisions. He

further pointed out that the lease agreement

between the applicants/lessee and the Board has to

be executed in terms of Form IV contained in the

third schedule. The Form is issued in terms of

Regulation 10(c). The form being statutory, it was

necessary to strictly comply with the aforesaid

provisions. However, in the contracts entered into

between the appellant Board and the allottees,

Clauses 7(a) and 7(b) have been introduced without

amending the applicable Regulations or Form IV.

Therefore, according to the learned senior counsel,

the final price fixation is without any statutory

basis. Learned senior counsel further submitted

that in calculating the final price, the respondents

have not only included the cost of land acquisition

1

which is not disputed, but also included future

development costs and interest on investments.

According to the learned counsel, the Board had no

power to levy such amounts either under the

contract or under the regulations. Learned senior

counsel submitted that the difference between the

so called tentative price and the final price is

excessive and unquestionable. The increase in price

can not be said to be marginal as the allottees are

now required to pay double the amount which was

initially indicated. Under Clause 7 of the

Regulations, the appellants were required to fix the

final price as soon as possible. In the present case,

the price has been finalized after a period of 13

years.

14. Learned senior counsel further submitted that the

respondents were not entitled to such an arbitrary

increase in price. This itself shows that the decision

making process was totally flawed. The

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respondents had taken into consideration factors

which were not permissible under the Statute or the

Regulations. Thus, the decision has been rendered

arbitrarily. This is evident from the fact that a sum

of Rs.237.14 lakhs is sought to be calculated for

future development. Learned senior counsel

submitted that the Division Bench, considering the

entire issue has recorded the correct conclusions

and, therefore, does not call for any interference.

15. We have considered the submissions made by the

learned counsel. It is true that under Clause 7(b),

the Board reserved to itself the right to fix the final

price of the demised premises as soon as it may be

convenient to it and communicate the same to the

concerned lessee. Upon communication of the

price, the lessee is required to pay the balance of

the value of the site. Determination of the price by

the Board is binding on the lessee. In our opinion,

the aforesaid clause would not permit the Board to

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arbitrarily or irrationally fix the final price of the site

without any rational basis. The power of price

fixation under Clause 7 being statutory in nature

would have to be exercised, in accordance with

statutory provisions; it can not be permitted to be

exercised arbitrarily. Undoubtedly, as observed by

this Court in the case of Premji Bhai Parmar

(supra), Courts would not reopen the concluded

contracts. Ms. Suri had placed reliance on the

observations made by this Court in Paragraph 10 of

the judgment, which are as follows:-

"Pricing policy is an executive policy. If the Authority was set up for making available dwelling units at reasonable price to persons belonging to different income groups it would not be precluded from devising its own price formula for different income groups. If in so doing it uniformly collects something more than cost price from those with cushion to benefit those who are less fortunate it cannot be accused of discrimination. In this country where weaker and poorer sections are unable to enjoy the basic necessities, namely, food, shelter and clothing, a body like the Authority undertaking a comprehensive policy of providing shelter to those who cannot afford to have the same in the competitive albeit harsh market of demand and supply nor can afford it on their own meagre emoluments or income, a little more from those who can afford for the benefit of those who need succour, can by no stretch of imagination attract Article 14. People in the MIG can be charged more than the

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actual cost price so as to give benefit to allottees of flats in LIG, Janata and CPS. And yet record shows that those better off got flats comparatively cheaper to such flats in open market. It is a well recognised policy underlying tax law that the State has a wide discretion in selecting the persons or objects it will tax and that the statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection the law operates unequally, and this cannot be justified on the basis of a valid classification, that there would be a violation of Article 14 (see East India Tobacco Co. v. State of A.P.). Can it be said that classification income-wise- cum-scheme-wise is unreasonable? The answer is a firm no. Even the petitioners could not point out unequal treatment in same class. However, a feeble attempt was made to urge that allottees of flats in MIG scheme at Munirka which project came up at or about the same time were not subjected to surcharge. This will be presently examined but aside from that, contention is that why within a particular period, namely, November, 1976 to January, 1977 the policy of levying surcharge was resorted to and that in MIG schemes pertaining to period prior to November, 1976 and later April, 1977 no surcharge was levied. If a certain pricing policy was adopted for a certain period and was uniformly applied to projects coming up during that period, it cannot be the foundation for a submission why such policy was not adopted earlier or abandoned later."

16. In our opinion, these observations would not be

applicable in the facts of this case. The appellants

are required to fix the price within the stipulated

parameters contained in the Statute and the Board

1

Regulations. Ms. Suri has also relied on a

judgment of this Court in the case of Indore

Development Authority Vs. Sadhana Agarwal

(Smt.) & Ors.4 in support of the submissions that

since the allotment letters indicated only the

tentative price, the respondents could not demand

that they be allowed the sites at the original price.

In that case, this Court observed as follows:-

"Although this Court has from time to time,

taking the special facts and circumstances of

cases in question, has upheld the excess

charged by the development authorities over

the cost initially announced as estimated cost,

but it should not be understood that this

Court has held that such development

authorities have absolute right to hike the cost

of flats, initially announced as approximate or

estimated cost for such flats. It is well known

that persons belonging to middle and lower

income groups, before registering themselves

for such flats, have to take their financial

capacity into consideration and in some cases

it results in great hardship when the

development authorities announce an

estimated or approximate cost and deliver the

same at twice or thrice of the said amount. The

final cost should be proportionate to the

approximate or estimated cost mentioned in

the offers or agreements. With the high rate of

inflation, escalation of the prices of

construction materials and labour charges, if

the scheme is not ready within the time-frame,

then it is not possible to deliver the flats or

houses in question at the cost so announced.

4 (1995) 3 SCC 1

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It will be advisable that before offering the flats

to the public such development authorities

should fix the estimated cost of the flats taking

into consideration the escalation of the cost

during the period the scheme is to be

completed. In the instant case the estimated

cost for the LIG flat was given out at

Rs 45,000. But by the impugned

communication, the appellant informed the

respondents that the actual cost of the flat

shall be Rs 1,16,000 i.e. the escalation is more

than 100%. The High Court was justified in

saying that in such circumstances, the

Authority owed a duty to explain and to satisfy

the Court, the reasons for such high

escalation. We may add that this does not

mean that the High Court in such disputes,

while exercising the writ jurisdiction, has to

examine every detail of the construction with

reference to the cost incurred. The High Court

has to be satisfied on the materials on record

that the Authority has not acted in an

arbitrary or erratic manner."

17. These observations make it clear that the High

Court has the jurisdiction to satisfy itself on the

material on record that the authority has not acted

in an arbitrary or erratic manner. In our opinion,

the High Court, in the present case, has not acted

beyond such jurisdiction. Ms. Suri then relied on

the case of Kanpur Development Authority Vs.

Sheela Devi (Smt.) & Ors.5 In the aforesaid case,

this Court reiterated the jurisdiction of the High

5 (2003) 12 SCC 497

2

Court to satisfy itself, that there was material on the

record to justify the escalation of cost of a

house/flat. The Court can take notice as to

whether the delay was caused by the allottee or the

authority itself. In our opinion, the judgment of the

High Court is within the parameters of the

jurisdiction vested in it under Article 226 of the

Constitution of India.

18. The Board being a State within the meaning of

Article 12 of the Constitution of India is required to

act fairly, reasonably and not arbitrarily or

whimsically. The guarantee of equality before law

or equal protection of the law, under Article 14

embraces within its realm exercise of discretionary

powers by the State. The High Court examined the

entire issue on the touchstone of Article 14 of the

Constitution of India. It has been observed that the

fixation of price done by the Board has violated the

Article 14 of the Constitution of India. It is correctly

2

observed that though Clause 7(b) permits the Board

to fix the final price of the demised premises, it

cannot be said that where the Board arbitrarily or

irrationally fixes the final price of the site without

any basis, such fixation of the price could bind the

lessee. In such circumstances, the Court will have

the jurisdiction to annul the decision, upon

declaring the same to be void and non-est. A bare

perusal of Clause 7(b) would show that it does not

lay down any fixed components of final price.

Clause 7(b) also does not speak about the power of

the Board to revise or alter the tentative price fixed

at the time of allotment. The High Court has

correctly observed that Clause 7(b) does not contain

any guidelines which would ensure that the Board

does not act arbitrarily in fixing the final price of

demised premises. Since the validity of the aforesaid

Clause was not challenged, the High Court has

rightly refrained from expressing any opinion

thereon.

2 19. Even though the Clause gives the Board an

undefined power to fix the final price, it would have

to be exercised in accordance with the principle of

rationality and reasonableness. The Board can and

is entitled to take into account the final cost of the

demised premises in the event of it incurring extra

expenditure after the allotment of the site. But in

the garb of exercising the power to fix the final

price, it can not be permitted to saddle the earlier

allottees with the liability of sharing the burden of

expenditure by the Board in developing some other

sites subsequent to the allotment of the site to the

respondents. The respondents have placed on

record sufficient material to show that acquisition

and development of land in the industrial area has

been in phases. Some areas and segments are fully

developed and others are in different stages of

development. Sites and plots have been allotted at

different times and locations. Thus, it cannot be

2

said that all the allottees form one class. Earlier

allottees having sites in fully developed segments

cannot be intermingled with the subsequent

allottees in areas which may be wholly undeveloped.

Such action is clearly violation of Article 14. We

are also of the opinion that the Board can not be

permitted to exercise its powers of fixing the final

price under Clause 7(b) at any indefinite time in the

future after the allotment is made. This would

render the word "as soon as" in Clause 7(b) wholly

redundant. As noticed earlier, in the present case,

the Board has sought to fix the final price after a

gap of 13 years. Such a course is not permissible in

view of the expression "as soon as" contained in

Clause 7(b).

20. In our opinion, the High Court correctly concluded

that the fixation of final price by the Board is

without authority of law. It violates Article 14 of

2

the Constitution of India being arbitrary and

unreasonable exercise of discretionary powers.

21. In view of the above, we find no merit in these

appeals. The appeals are accordingly dismissed.

...................................J.

[B.Sudershan Reddy]

...................................J.

[Surinder Singh Nijjar]

New Delhi

April 06, 2011.

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