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IN THE HIGH COURT OF DELHI
Najmi Waziri, Sudhir Kumar Jain, JJ.
Delhi State Industrial & Infrastructure Development Ltd. - Appellant
Versus
C & S Electric Ltd. - Respondent
LPA 439 of 2019 & CM Appl. 30736 of 2019 (stay), CM Appl. 30737 of 2019(delay) & CM Appl. 30738 of 2019
Decided On : 07-12-2022
A change in shareholding does not trigger unearned increase unless it is directly related to the transfer of leasehold property.
Headnote:(A) Relevant Laws - Leasehold Property Conversion Policy Dated 11.10.2013 - Inapplicability of Unearned Increase Where No Sale Occurs.
(B) Legal Principle - Change in shareholding does not mandate the payment of unearned increase unless linked to transfer of ownership.
(C)
Facts of the case:
The respondent sought to convert leasehold property to freehold, contested demand for unearned increase based on change of shareholding.
(D)
Findings of Court:
Demand for unearned increase deemed unsustainable due to absence of property transfer, affirming principles from precedent cases. (E)
Issues: Whether a change in shareholding constitutes a transfer of leasehold property thereby invoking unearned increase. (F)
Ratio Decidendi: The court reiterated that without a sale or transfer of property, the concept of unearned increase cannot apply, citing prior judgments reinforcing that identity of company distinct from shareholders; key reference to existing policy guidelines preventing unwarranted charges under similar circumstances. (G)
Result: Appeal dismissed; directions for compliance within specified time frame.
JUDGMENT
Najmi Waziri, J. (ORAL)
The hearing has been conducted through hybrid mode (physical and virtual hearing).
1. The respondent applied for conversion of leasehold property bearing no. 222, Okhla Industrial Estate, New Delhi -110020 admeasuring 2435 sq. yds to freehold property under the extant policy. The lessor DSIIDC states that the applicant was obliged to pay 50% of the unearned increase value of the property. The basis for the said demand was that there has been a change in the shareholding of the company. The said demand was impugned before this court in a writ petition (W.P.(C)6231/2013) which was allowed by the learned Single Judge vide order dated 22.02.2019 holding inter alia as under:
"...9. The issue whether a change in the shareholding warrants imposition of unearned increase was considered by the Coordinate Bench of this Court in K.G. Electronics Pvt. Ltd. v. DSIIDC Ltd, W.P. (C) 2324 of 2013, wherein it was held that the guidelines in question do not provide for the payment of unearned increase in case of transfer of shares in a company and, therefore, the respondents are not entitled to claim unearned increase. It is relevant to note that in that case, the original promoters had divested 42.36% of the total outstanding share capital, out of which a substantial part was towards their respective spouses. The Court noted that 28.248% of the shares transferred by the promoters were held by non-family members. Indisputably, the petitioner's case is on a better footing as only 10.23% of the shareholding is held by persons other than the original promoters.
10. It is also relevant to note that the aforesaid decision clearly rested on the principle that change in the shareholding of a company would not amount to transfer of its assets. It is relevant to note that the aforesaid decision was carried on in an appeal by the respondents before the Division Bench of this Court in LPA 391 of 2014 captioned Delhi State Industrial & Infrastructure Development Corporation Ltd. v. M/s. K.G. Electronics Pvt. Ltd. & Anr. The said appeal was rejected by a judgment dated 07.11.2014. In its decision, the Division Bench had also referred to the decision of the Constitution Bench of the Supreme Court in Bacha F. Guzdar v. Commissioner of Income Tax, (1955) AIR SC 74, wherein the Supreme Court had authoritatively held that the identity of the company was not the same as that of its shareholders and, consequently, the dividends declared by the company out of agricultural income in the company's hands were not in the nature of agricultural income in the hands of its shareholders.
11. In view of the above settled law, the demand for unearned increase by the respondent is unsustainable, as there is no transfer of the property in question. The impugned communication is, accordingly, set aside..."
2. DSIIDC was also directed to process the petitioner's application within a period of 08 weeks from the date of the said order. The appellant has impugned the order for the reason that under the policy dated 11.10.2013 for conversion of the leasehold property into freehold, the applicant's application falls in Category 3 of the policy and Clause 4 thereof reads as under:
"4. UEI is not applicable in those cases where conversion of Pvt. Ltd. Company into Public Ltd. Company was an involuntary act i.e. by operation of law provided there is no change in the pattern of shareholding."
3. In support of its contention, DSIIDC relies upon clarificatory orders issued by the DDA pursuant to advice sought from DDA about a decade earlier on 13.12.2004 to the following effect:
"In partial modification of office order no LSA/I(6)87/Policy case/ Unearned increase dated 6th September, 1988, it has been decided vide approval of Hob'ble Lt. Governor of Delhi dated 20.10.2004 in file no F.64(6)2004/CL/PI(Commercial Land Branch) to modify para 1(d) of the instructions contained in the above order as under:
"1(d) in case of change of status from a Private
