IMPORTANT POINTS
Power to renew lease is discretionary and it must be exercised in public interest.
When renewal of lease is held vitiated, subsequent events on that basis cannot be sustained.

JUDGMENT

Dr. D.Y. Chandrachud, J.

Leave granted.

2. The appellant, Ajar Enterprises Private Limited ("Ajar") has called into question a judgment of a Division Bench of the Madhya Pradesh High Court, in its Bench at Indore, dated 8 February 2016. The High Court (i) set aside the renewal of a lease granted by Ujjain Development Authority ("UDA") to Ajar for the period from 21 December 2012 till 20 December 2042; (ii) directed that possession of the land in dispute be taken back; (iii) that in order to fetch the best price, the land be put to a public auction; and (iv) directed that the transfer fee which was charged to Ajar should be fixed on the basis of the guidelines for 2011-2012 and the differential be recovered with interest at eight percent per annum. These directions have been issued by the High Court while entertaining a petition filed in public interest by the first and second respondents.

3. UDA is a statutory body constituted under the Madhya Pradesh Town and Country Planning Act, 1973. On 16 July 1985, a deed of lease was executed by UDA of land admeasuring 43,407.00 square meters, situated at Sanwer Road and comprised in Nanakheda Scheme No. 23 at Ujjain in favour of a company by the name of IISCO Stanton Pipe & Foundry Company Ltd ("IISCO"). The term of the lease was thirty years and an amount of Rs. 4,34,070 was charged as premium. The annual lease rent was fixed at Rs. 8, 681 at the rate of two percent of the total premium. The salient provisions of the lease were :

(i)The purpose of the lease was to enable IISCO to construct residential houses and develop a colony on the land;

(ii) The term of the lease was thirty years;

(iii) The lease contemplated that it could be extended, upon the expiry of the initial term for two further periods each of thirty years subject to the payment of an enhanced lease rent of fifty percent above that payable for the previous term. The clause on renewal was as follows :

"The lease period and lease rent is effective from 21.12.82. Thereafter the term of lease can be extended (renewed) for two further periods of 30-30 years. At the time of every extension the lease rent can be increased by 50%."

(iv) Since the land was granted on lease for the development of a residential colony, the lessee was ordinarily not permitted to transfer it until the construction was complete. Clause 4 of the lease provided as follows :

"The lessee has been given the land to develop the colony and construct residential houses. Therefore, until houses are constructed on this plot, this plot cannot be transferred to anyone in any manner. So long as the lessee does not construct the houses on this plot as per the sanctioned plan, he cannot mortgage, gift or in any other manner transfer this plot without the permission of the Authority. If the lessee wishes to transfer his plot to any other person due to any special circumstances then on the basis of the pros and cons of the case, on condition of payment of transfer fees to the Ujjain Development Authority of 10 % on the amount that is arrived at by adding 20 times the annual lease rent to the premium, the permission for transfer can be given. If the transfer is desired in the interests of the transferor's natural justice then on deposit of transfer fee of Rs. 100/- the plot of land can be transferred. This permission shall be given only when the lessee obtains a permission letter from the competent authority under the urban Land Ceiling Act, 1976 and submit it."

(v) The lessee had to submit building plans for approval within six months of receiving possession and to commence construction within two years. An extension of time could be granted limited to one year (Clause 5);

(vi) If construction was not commenced within the specified period, the lessor had a right of re-entry, upon which the amount paid by the lessee would be refunded with a deduction of twenty percent (Clause 6); and

(vii) The lease would be governed by other requirements of UDA, the municipal corporation