Judgment

SAWANT, J. :- Leave granted.

2. These appeals arise out of the same facts and judgments of the Karnataka High Court and are being disposed of by this common judgment. For the sake of the narration of events Civil Appeal Nos. 1461-72 1993 arising out of S.L.P. (Civil) Nos. 7230-41 of 1991 may be referred to.

The 2nd respondent- M/s. Narayanaswamy & Sons is a partnership firm. While it was carrying on the business of manufacturing and selling of polished granites, it acquired on 30-9-1953, 6 acres and 4 gunthas of land in Survey Nos. 6/1 and 6/2 of Dasarahalli in the heart of Jayanagar Extension of the city of Bangalore. Out of the said land, 1 acre and 2 gunthas had already been acquired by the 1st respondent-State Government under notification dated 1-4-1948. The acquisition proceedings had culminated in an award, granting compensation to the land owner on 3-3-1955. In a small portion of the said land, the 2nd respondent-firm (hereinafter referred to as the firm), established a granite factory and the rest of the land was vacant when the Urban Land (Ceiling and Regulation) Act, 1976 (the Act) was made applicable to the Bangalore Agglomeration consisting of the area within the jurisdiction of the Bangalore City Municipal Corporation and the Trust Board, and the peripheral area of 5 Kms.

3. On 9-6-1983, the firm preferred an application to the State Government for exemption of the vacant land from the provisions of Chapter III of the Act. By an order of 17-7-1985, the State Government granted exemption under S. 20 of the Act for industrial use of a granite factory. The exemption related to 16194 sq. mtrs. of land and was granted on the following conditions:

(i) The entire land utilisation shall be completed within a period of two years from the date of the order.

(ii) The exempted land shall be exclusively used for the purpose for which the exemption was granted and for the purposes related thereto.

(iii) The land shall not be transferred by way of sale, mortgage, gift, lease or otherwise without prior permission of the Government and that such permission, when given, shall be subject to such conditions as the Government may deem fit to impose.

4. The 3rd respondent-partnership firm M/s. Reevajethu, Builders and Developers (the builders) was constituted on 6-1-1987 with Smt. Shobha Makhija as the major partner with 50 share and other 18 partners, mainly "to develop the immovable property to be acquired by the firm of an extent of 5 acres and 24 gunthas situated at Survey Nos. 6/1 and 6/2 of Dasarahalli of Bangalore City and to carry on the business as builders and developers of flats, shops, commercial complexes and other types of buildings, dealers in real estate and all other allied business and activities" and to "carry on any other business as may be mutually agreed upon by all the partners". It is not in dispute that Smt. Shobha Makhija is the sister of the son-in-law of the 4th respondent who was then the Chief Minister of the State of Karnataka.

5. On 9-1-1987, the competent authority under the Act came to the conclusion that the excess vacant land out of the said Survey Nos. 6/1 and 6/2 after the grant of exemption by the Government Order dated 17-7-1985. was 3444 sq. mtrs. The competent authority accordingly directed the publication of a notification under S. 10(1) of the Act for the acquisition of the said excess vacant land.

6. On the same day, i.e. 9-1-1987, the firm made an application to the State Government for permission to sell land to the extent of 5 acres and 24 gunthas comprised in the said Survey Nos. 6/1 and 6/2 to the builders. The grounds made out in the application were that due to stiff competition, and nationalisation of black and pink granite by the southern States including Karnataka, the firm was running under losses; that its Woodlands Hotel at Madras was also not making profits since the hotel building had become very old and there were no fund for modernising it; that its theatres in Madras were