State Largesse To Private Bodies Must Adhere to Statutory Rules; Free Land Allotment Violates Mandatory Procedure: Telangana High Court - 2025-07-05

Telangana HC Quashes Free Land Allotment to Arbitration Centre, Upholds Financial Aid & Dispute Referral Policy

HYDERABAD: In a significant ruling on the distribution of state largesse, the Telangana High Court has quashed a government order allotting prime land worth crores of rupees free of cost to the International Arbitration & Mediation Centre (IAMC). A division bench of Justice K. Lakshman and Justice K. Sujana , while setting aside the land allotment for violating mandatory statutory rules, upheld other government orders providing financial aid to the IAMC and directing state departments to refer high-value disputes to it.

The Court underscored that while the government's policy to promote institutional arbitration is laudable, the means adopted, particularly the alienation of public property, must strictly conform to the law.

The Case at a Glance

The High Court was hearing two Public Interest Litigations (PILs) filed by Koti Raghunatha Rao and A. Venkatarami Reddy. The petitioners challenged a series of Government Orders (G.O.s) issued by the Telangana government in support of the IAMC, a public charitable trust established to promote alternative dispute resolution. The key challenges were against:

1. G.O. Ms. No. 126: Allotment of 3.70 acres of valuable land in Raidurg, Hyderabad, free of cost to IAMC.
2. G.O. Ms. No. 76 & 365: Granting financial aid of ₹3 crores to IAMC.
3. G.O. Ms. No. 6: Directing all state departments and PSUs to refer disputes valued above ₹3 crores to the IAMC for arbitration.

Arguments Before the Court

Petitioners' Contentions: The petitioners argued that the government's actions amounted to an abuse of power and caused a significant loss to the public exchequer. They contended that: * The free allotment of valuable land was arbitrary and violated laws that mandate disposal of government land only through sale, lease, or auction. * IAMC, being a private entity, could not be the recipient of such state largesse, especially when it charges high fees for its services. * The G.O.s smacked of favouritism and risked the misuse of public property, as the IAMC's trust deed empowered it to sell the land.

Respondents' Defence: The State of Telangana and the IAMC countered that their actions were aimed at a legitimate public purpose: establishing Hyderabad as a global hub for arbitration. They argued: * The support was based on the recommendations of a high-level committee constituted by the Central Government (Justice B.N. Srikrishna Committee) to promote institutional arbitration. * The government had the power to allot land for a "public purpose" under Section 25 of the Telangana Land Revenue Act, 1317 Fasli. * IAMC is a 'not for profit' public charitable trust, and its board includes judges and public officials, ensuring transparency and accountability.

Court's Analysis: Ends Don't Justify Unlawful Means

The High Court bifurcated its analysis, examining the land allotment separately from the financial aid and dispute resolution policy.

On Land Allotment: The bench found that the free allotment of land was in direct contravention of the Andhra Pradesh (Telangana Area) Alienation of State Lands and Land Revenue Rules, 1975 . Citing precedent, the Court emphasized that these rules are mandatory and structure the government's discretion in alienating public property.

The judgment highlighted two critical violations of Rule 3 of the 1975 Rules: 1. Alienation of land to a private institution, even for a public purpose, requires the collection of its market value. Free allotment is only permissible for local bodies for unremunerative purposes. 2. The rules require the recipient entity to be registered under the Companies Act, which the IAMC was not at the time of allotment.

The Court cited the Supreme Court's decision in * Humanity v. State of W.B. * to assert that bona fide ends do not justify questionable means. It held: > "We hold that G.O. Ms. No. 126 dated 26.12.2021 was issued contrary to Rule 3 of the Rules, 1975. The allotment of subject land free of cost to the IAMC is unsustainable and contrary to the procedure. Likewise, the allotment could not have been done in favour of the IAMC which was not registered as a company under the Companies Act."

The Court also noted the "unduly hasty" manner in which the land's possession was handed over even before the terms of allotment were finalized, stating, "Such hasty decisions do not bode well."

On Financial Aid and Dispute Policy: Conversely, the Court found the G.O.s providing financial assistance and mandating dispute referral to be valid policy decisions. It accepted the government's rationale that these measures were in line with the national policy to strengthen institutional arbitration. The bench observed: > "It is in the wisdom of the government to provide financial assistance to an institution like the IAMC formed to reduce pendency of litigation and to make Hyderabad a business-friendly city and a commercial destination. As far as the intent of the government to support the IAMC financially is concerned, the same is justified and we find no arbitrariness in the said decision."

However, the Court sounded a note of caution regarding the IAMC's performance, pointing to its "abysmally low caseload" despite receiving significant financial support. Drawing parallels with the failed International Centre for Alternative Dispute Resolution (ICADR), the Court directed the government to conduct an annual performance and financial audit of the IAMC.

Final Verdict

The High Court partly allowed the PILs with the following directions: 1. G.O. Ms. No. 126 dated 26.12.2021 was set aside , and the allotment of 3.70 acres of land to the IAMC was cancelled. 2. The G.O.s granting financial aid and directing the referral of government disputes to the IAMC were upheld . 3. The Government of Telangana was directed to annually review the IAMC's performance and audit its accounts . 4. Any future release of funds after the initial five-year period must be contingent on the IAMC's performance .