Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(Del) 6345

IN THE HIGH COURT OF DELHI AT NEW DELHI
Vikas Mahajan, J
Ajai Chowdhry – Appellant
Versus
Delhi Development Authority – Respondent
W.P.(C) 7998/2023 | CM APPL. Nos. 30768/2023 | CM APPL. Nos. 34555/2023 | CM APPL. Nos. 61475/2023

Advocates:
For the Appellants/Petitioners: Chander Uday Singh, Vivek Singh, Kirti Mewar, Ajay Lulla
For the Respondents: Kritika Gupta, Vidushi Singhania

A demand for unearned increase is unsustainable when a governmental body auctions an acquired property at market value. However, historical liabilities regarding initial leasehold transfers remain payable as a condition precedent for converting the property to freehold, notwithstanding the limitation period for filing recovery suits.

Headnote:(A) Limitation Act, 1963 - Income Tax Act, 1961 - Section 269UD(1) - Unearned increase - Demand for - Property converted from leasehold to freehold - Allegation of stale demand - Held, while bar of limitation prevents recovery by suit, right to demand remains - Lessor can insist on clearing all dues before granting conversion. (Paras 45, 47)

(B) Unearned Increase - Concept of - Difference between premium paid and subsequent market value - Auction by governmental body - Where property is acquired through statutory powers and later auctioned at market value, demand for unearned increase on this transaction is not sustainable - Concept hinges on profiteering by original lessee; absent where the seller acts as a statutory acquirer disposing of property at market value. (Paras 33, 39-42)

(C) Interest - Awarding of - Discretionary remedy - Equitable considerations - Rate reduced to 7% per annum - Balance between fairness and financial impact necessary to reflect 'loss of use' and economic prudence. (Paras 49, 54, 57)

Facts of the case:
The petitioner purchased a plot through a public auction conducted by the state after the property was statutorily acquired. Upon applying for conversion from leasehold to freehold status, the land-owning agency raised a demand for unearned increase covering two previous transactions. The validity of this demand was challenged on grounds of limitation and the absence of a legal basis for the second transaction.

Findings of Court:
The court upheld the demand regarding the first transaction as it was an acknowledged liability but quashed the demand regarding the second transaction as the state-conducted auction at market value negated the conceptual basis for an unearned increase.

Issues: Whether the demand for unearned increase was time-barred and whether the demand concerning the second transaction was legally sustainable.

Ratio Decidendi: A demand for unearned increase is untenable when a property is auctioned at market price, as the original premise of a concessional allotment is absent. However, outstanding liabilities regarding historical transfers remain payable as a condition precedent for conversion, regardless of the limitation period typically applicable to recovery suits.

Result: Petition partly allowed; impugned demand quashed for the second transaction; recovery for the first transaction allowed with 7% interest.

Table of Content
1. factual history regarding leasehold property acquisition and conversion dispute (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12)
2. argument that unearned increase is inapplicable to statutorily auctioned property (Para 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21)
3. respondent argues unearned increase is a valid condition for conversion (Para 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30)
4. assessment of liability acknowledgment under contractual terms for original lease (Para 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38)
5. auction sale by government does not trigger unearned increase liability (Para 39 , 40 , 41 , 42 , 43)
6. limitation period bars remedy but not the underlying debt for conversion (Para 44 , 45 , 46 , 47)
7. equitable interest determination based on mutual administrative negligence (Para 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57)
8. distinction of corporate restructuring precedents and final disposal of writ (Para 58 , 59 , 60)

JUDGMENT

VIKAS MAHAJAN, J

1. The case set out by the petitioner in the instant petition is that vide a Perpetual Lease Deed dated 06.04.1978, the President of India leased rights of Plot No. 10, ad measuring 598 square yards, situated at Ishwar Nagar, New Delhi (hereinafter referred to as ‘the subject property’), in favour of Ishwar Nagar Co-operative Group Housing Society Ltd.

2. Subsequently, vide a registered Perpetual Sub-Lease Deed dated 16.08.1979, the President of India, in conjunction with Ishwar Nagar Co-operative Group Housing Society Ltd., perpetually sub-leased the subject property in favour of Mr. Vidur Bhaskar and Mrs. Chiterlekha Bhaskar. Thereafter, Mr. Vidur Bhaskar and Mrs. Chiterlekha Bhaskar, vide an Agreement to Sell dated 09.10.1991, agreed to sell the said property to Mr. Joy Paul Vadakkel for a total sale consideration of Rs. 70,00,000/-.

3. In furtherance of the aforesaid agreement to sell, Mr. Vidur Bhaskar applied to the Income Tax Department (hereinafter ‘the department’) for permission to complete the aforesaid transaction by filing the requisite form. However, the department, exercising its powers under Section 269UD(1) of the Income Tax Act, 1961, declined to grant permission and ordered purchase of the said property by the Central Government for the same consideration of Rs. 70,00,000/-. Pursuant thereto, the Central Government paid the entire sale consideration to Mr. Vidur Bhaskar and acquired the said property.

4. Thereafter, the department auctioned the said property on 17.09.1993, in which the petitioner emerged as the highest bidder with a bid of Rs.1,12,90,000/-, which was duly accepted by the competent authority. Following this, and pursuant to the Supplementary Terms and Conditions of the auction sale deed, the respondent levied a demand of unearned increase and composition fee amounting to Rs.23,79,106/- upon the petitioner.

5. Subsequently, the President of India, acting through the Central Board of Direct Taxes, executed a Sale Deed dated 05.04.1994 in favour of the petitioner with respect to the subject property. The petitioner has remained in continuous possession of the said property ever since.

6. On 18.02.2022, the petitioner approached the respondent/DDA by submitting an online application on the respondent’s e-portal, seeking conversion of the said property from leasehold to freehold.

7. The respondent’s failure to process petitioner’s leasehold-to-freehold conversion application within the prescribed two-month period and after eight months of inaction, the petitioner escalated the matter through a formal letter to the Lt. Governor on 06.10.2022, and a personal meeting with the Vice Chairman the following day. Despite these efforts, the respondent/DDA remained silent until 06.12.2022, when it issued a demand on its e-Portal for a staggering sum of Rs. 8,94,98,546/- towards ‘unearned increase’. This demand was coupled with a notice that the conversion application would be summarily rejected unle

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2026 Supreme(Online)(Del) 6345

IN THE HIGH COURT OF DELHI AT NEW DELHIVikas Mahajan, JAjai Chowdhry – AppellantVersusDelhi Development Authority – RespondentW.P.(C) 7998/2023 | CM APPL. Nos. 30768/2023 | CM APPL. Nos. 34555/2023 | CM APPL. Nos. 61475/2023

Cases Referred (4)

IN THE HIGH COURT OF DELHI AT NEW DELHI
Vikas Mahajan, J
Ajai Chowdhry – Appellant
Versus
Delhi Development Authority – Respondent
W.P.(C) 7998/2023 | CM APPL. Nos. 30768/2023 | CM APPL. Nos. 34555/2023 | CM APPL. Nos. 61475/2023