Any Loss Caused To State Corporation Is Loss To Public Exchequer: Supreme Court Directs Lessee To Pay Conversion Charges To KSEDCL

The Supreme Court has held that any loss caused to an undertaking or corporation which is fully owned by the State, is a loss caused to the Public Exchequer.

“There is no denying the fact that the appellant is a fully owned Undertaking/ Corporation of the State of Karnataka. Any loss suffered by it would be a loss to the Public Exchequer. The respondent, on the other hand, has shifted its purpose of setting up an IT related industry to a Hospitality sector to set up a hotel. If the amount for such conversion of usage is not legally recovered from the respondent, as a result, loss being suffered by the appellant, would not be in public interest.”

The Bench comprising Justice Vikram Nath and Justice Ahsanuddin Amanullah, while adjudicating a matter wherein a lessee had paid land use conversion charges to a State-owned Corporation at a lower rate, has directed the Lessee to pay as per prevailing rate for commercial use of land.

BACKGROUND FACTS

The State of Karnataka incorporated Karnataka State Electronics Development Corporation Ltd. (“Appellant/Lessor”) for establishing an 'Electronic City' in Bangalore.

In 2006, the Appellant allotted a plot admeasuring 0.25 acres (“Land”) to Kumaon Entertainment and Hospitalities Pvt. Ltd. (“Respondent/Lessee”) for setting up project relating to Information Technology sector. The tentative price fixed of the allotted land was Rs. 1 Crore per acre.

On 19.07.2007, the Appellant in its 141^st Board meeting resolved that the price for allotment would be Rs. 3.2 Crores per acre. Subsequently, the Respondent sought conversion of use of allotted Land from Information Technology sector to Hospitality sector. As per the Letter of Allotment and the Lease Agreement, change in nature of use of Land was permissible upon payment of additional charges at the prevailing rate.

The Clerical staff and officers of Appellant mistakenly raised demand from the Respondent for a lower value of land use conversion charge.

Thereafter, an audit objection was raised that the prevailing rate of Land at the time of change of use was Rs. 3.2 Crores per acre (for residential purpose), whereas permission of change of use was granted at a much lower rate. Thus, causing a loss of Rs. 46.25 Lakhs to the Appellant.

Further, since the Land was being utilized for commercial purpose, the rate would be Rs. 4.48 Crores per acre. Thus, causing additional loss to Appellant amounting to Rs. 32 Lakhs.

The Respondent requested the Appellant to execute sale deed. However, the Appellant issued a Demand Notice to the Respondent seeking payment of Rs. 83.25 Lakhs towards land use conversion charge, as per prevailing rate of Rs.4.48 Crores per acre. The Respondent did not pay the amount and filed a writ petition before the High Court seeking direction to Appellant to execute sale deed which was allowed by the Single Judge. In intra court appeal, the Division Bench of High Court on 28.07.2017 dismissed the Appellant's appeal on the premise that the same was filed after a delay of 459 days.

The Appellant filed an appeal before the Supreme Court against the order dated 28.07.2017.

SUPREME COURT VERDICT

The Bench opined that the Appellant being a State owned undertaking, any losses sustained by it would be a loss to public exchequer. It would be against public interest if the balance land use conversion charge is not recovered from the Respondent.

“There is no denying the fact that the appellant is a fully owned Undertaking/ Corporation of the State of Karnataka. Any loss suffered by it would be a loss to the Public Exchequer. The respondent, on the other hand, has shifted its purpose of setting up an IT related industry to a Hospitality sector to set up a hotel. If the amount for such conversion of usage is not legally recovered from the respondent, as a result, loss being suffered by the appellant, would not be in public interest. It is also not disputed that all other similarly situate allottees have paid at the rate determined in the 141^st Board Meeting of the appellant.”

It was held that the Respondent can't take undue advantage of the mistake done by Clerical staff of Appellant in computing the conversion charges at a lower rate. The decision taken by Appellant's Board of Directors in 141^st Board Meeting cannot be overridden by the clerical staff or officers of Appellant.

“Neither the clerical staff nor an officer of the appellant would be competent to override or deviate from the decision of the Board of Directors taken in the 141st Board Meeting. The 141st Board Meeting has taken place prior to the respondent applying for change of use and issuing of the demand notice for conversion, there could be no justification for not adhering to the decision taken in the 141st Board Meeting. A bona fide mistake could always be corrected.”

Further, the Lease Agreement and the Letter of Allotment stipulated that the rate of Rs. 1 Crore per acre was tentative and the final rate would be determined later on, which would be binding on the Lessee (Respondent).

“The respondent cannot, in any manner, go against the terms and conditions given under the Letter of Allotment as also the Lease Agreement. Once the respondent is bound by the terms and conditions, the final rate determined by the Board in its 141st meeting, being the prevailing rate of the Collector, would be binding on the respondent”, the Bench observed.

The Bench held that the Division Bench failed to exercise its discretion in condoning the delay, thereby resulting into serious prejudice and financial loss to the Appellant, which is a public entity. Accordingly, the Respondent was held liable to pay the conversion charge as per land use conversion charge applicable to commercial use of land.

Case Title: Karnataka State Electronics Development Corporation Ltd. v Kumaon Entertainment and Hospitalities Pvt. Ltd.

Citation : 2023 LiveLaw (SC) 86

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