Public Authorities Cannot Act Arbitrarily While Allotting Public Land To Private Entities : Supreme Court [Read Judgment]

While affirming the Madhya Pradesh High Court judgment cancelling the allotment of leasehold rights by Ujjain Development Authority(UDA) to a private entity, viz, M/s Ajar Enterprises Ltd., the Supreme Court stated that public authorities have to act fairly without arbitrariness while parting with public resources.

In this case, the UDA had initially granted leasehold rights for thirty years to IISCO Ltd., a subsidiary of Steel Authority of India Ltd.(SAIL). IISCO Ltd. went in liquidation before the Calcutta High Court, and its rights and assets were auctioned by the Official Liquidator. Included in such rights were the leasehold rights granted by UDA. The leasehold rights were purchased in auction by Ajar. At the time of auction purchase, only seven years of the initial lease period of thirty years were remaining. The auction purchase of Ajar was approved by Calcutta High Court.

The lease agreement purchased by Ajar was set to expire in 2012. After its expiry, the UDA renewed the lease agreement for another period of thirty years. The renewal was sought to be justified stating that the Calcutta High Court had directed renewal; whereas the Calcutta High Court had merely approved the assignment of residuary period of leasehold rights to Ajar, and had expressed nothing about renewal. After the renewal, the leasehold right was converted into freehold right by UDA.

This was questioned in a public interest litigation filed before the Madhya Pradesh High Court. It was alleged that the rights were parted away at a throwaway price. Allowing the petition, the High Court quashed the renewal and conversion of leasehold as freehold.

The Supreme Court refused to interfere with the High Court judgment. It was termed that the case The present case was  an illustration of a situation where a public body has acted oblivious to and in disregard of public interest. The Court noted that the initial grant in favour of IISCO was done at a concessional rate, for a specific public purpose, which was to develop the land to build quarters for IISCO employees. IISCO having been gone into liquidation, the original purpose of the concessional grant was defeated. The auction purchaser Ajar is a private entity, who is seeking to commercially utilize the land for profit. Therefore, Ajar cannot seek to benefit out of the concessional grant made to IISCO. There was no indefeasible right of renewal of lease. Renewal was always discretionary. But the UDA misconstrued the Calcutta High Court judgment to justify renewal. The consideration for renewal and conversion into freehold was not in parity with prevalent commercial rates. It was observed as follows :

Undoubtedly, disposal of natural resources by auction is not a mandatory principle for, as the Constitution Bench held, individual statutes may provide for modalities of transfer by alternate modes which subserve public interest. In the present case, as we have noted, Rule 5 of the 1975 Rules provides four modalities: (i) direct negotiations; (ii) auction; (iii) inviting tenders; and (iv) concessional terms. Where the statute has provided for several modes of disposal, the choice among one of the available methods must facilitate the fulfilment of public interest. That inter alia requires consideration being given to all aspects of the matter including the nature and value of the land, the purpose of the allotment and the need for the authority to generate funds to facilitate the objects for which it was constituted, such as planned development. The choice of one of a range of permissible choices can never be based on the anvil of conferring an undeserved benefit on a commercial developer. The choice of methods is not left to the unbridled discretion of a public authority. Where a public authority exercises an executive prerogative, it must nonetheless act in a manner which would subserve public interest and facilitate the distribution of scarce natural resources in a manner that would achieve public good. Where a public authority implements a policy, which is backed by a constitutionally recognised social purpose intended to achieve the welfare of the community, the considerations which would govern would be different from those when it alienates natural resources for commercial exploitation. When a public body is actuated by a constitutional purpose embodied in the Directive Principles, the considerations which weigh with it in determining the mode of alienation should be such as would  achieve the underlying object. In certain cases, the dominant consideration is not to maximize revenues but to achieve social good such as when the alienation is to provide affordable housing to members of the Scheduled Castes or Tribes or to implement housing schemes for Below the Poverty Line (BPL) families. In other cases where natural resources are alienated for commercial exploitation, a public authority cannot allow them to be dissipated at its unbridled discretion at the cost of public interest.

The Court also went to the extent of saying that there was an element of fraud in the transaction and observed that the subsequent conversion of the land to freehold in September 2013 cannot enure to the benefit of Ajar since the underlying basis of the entire transaction stands vitiated by fraud.

However, the Court also took into account the fact that third party rights were created by Ajar, and that such third parties were not before the High Court. Therefore, directions under Article 142 were issued to state that the quashment of renewal will not affect the allotments made to third parties by Ajar before the filing of petition in the High Court. However, the equitable benefit was not extended to those allotments which were made during the pendency of the writ petition.