The court established that an auction conducted in violation of lease terms is illegal, and that restitution principles mandate repayment to innocent parties affected by such illegality.

JUDGMENT :

ALOK ARADHE, J.

1. This appeal emanates from an order dated 11.08.2014 passed in Writ Petition (C) No. 5005 of 2014 by which High Court of Delhi has dismissed the writ petition preferred by the appellant.

The present appeal brings before this Court a contest not merely of rights but of duties - the duty of the lessee to honour the covenants of the lease, the duty of a bank to exercise due diligence before advancing public money and the duty of an instrumentality of the state, as trustee of public property, to guard against encroachment upon its title. It also brings before us the plight of an Auction Purchaser who entered the field in good faith only to find the ground beneath its feet unstable.

2. The relevant facts leading to filing of this appeal are as under:-

(i) FACTS: -

3. The Delhi Development Authority-the Appellant (hereinafter referred to as “DDA”) on 01.10.2001 allotted Plot No. 25, Facility Centre-33 Kalindi Kunj Road, Jasola, New Delhi admeasuring 877.50 square metres (hereinafter referred to as “subject plot”) to Respondent No. 2 namely, Sarita Vihar Club (hereinafter referred to as “the club”) on leasehold basis. The subject plot was allotted to the club on a premium of Rs.62,96,664/- for construction of a recreational and sports club. The club was required to pay a provisional premium, in respect of subject plot, at the rate of Rs.2,90,40,000/- per acre with annual ground rent at the rate of Rs. 2.5 % per annum of the total premium. As per the letter of allotment dated 01.10.2001, the club, with previous consent in writing of the Lieutenant Governor of Delhi, could mortgage or charge the subject plot to such person as may be approved by the Lieutenant Governor in his absolute discretion.

4. The club on 28.11.2001 deposited a sum of Rs.29,50,000/- to the DDA. It appears that the club applied for sanction of loan for a sum of Rs.35,00,000/- to Respondent No. 1 namely, the Corporation Bank (hereinafter referred to as the “Bank”). The Bank thereafter by a communication dated 07.02.2002 informed the club that the proposal of sanction of loan is being forwarded to the higher authorities for consideration and requested the club to seek a permission for mortgaging the subject plot from the DDA. The club vide communication dated 11.02.2002, sought the permission of the DDA for mortgaging the subject plot for arranging the balance payment. The DDA, by a communication dated 22.02.2002, granted NOC to the club for applying loan to the Bank for making payment to the DDA, on account of the premium of the plot subject to the condition that permission for mortgage of the plot shall be issued only after execution/registration of the lease deed. The Bank thereafter by a communication dated 22.03.2002 sought the permission of the DDA for mortgage of the subject plot and to note lien of the Bank on the subject plot. The club on 12.04.2002 deposited an additional amount of Rs.2,05,000/- to the DDA which included the interest on the delayed payment as well. Thereupon DDA on 29.04.2002 issued a modified letter of allotment in favour of the club and the amount of initial premium of Rs.64,53,107/- was modified to Rs.64,54,126/-.

5. A perpetual lease deed in respect of subject plot was executed on 28.01.2005 between the DDA and the club. Clause 5(b) of the lease deed provided that previous consent in writing of Lieutenant Governor of Delhi for mortgage or charge of the subject pl