SUPREME COURT RULING ON LEGALITY OF AUCTION SALE AND LEASEHOLD RIGHTS IN LIQUIDATION PROCEEDINGS

The Judgment in the Case of Delhi Development Authority v. S.G.G. Towers (P) Ltd. & Ors. [Civil Appeal No. 1972 of 2011] was delivered by a  Division Bench of the Hon’ble Supreme Court of India comprising Hon’ble Justice Abhay S Oka and Justice Ujjal Bhuyan on 07-03- 2025. The Supreme Court ruled that without the formal execution of the lease between the Delhi Development Authority (DDA) and M/s Mehta Constructions, no rights or interests could be transferred underscoring the importance of legal formalities in land transactions, especially involving government land. The judgment also addressed the effect of liquidation proceedings on property rights.

Facts:

The Appellant, DDA (formerly known as the Delhi Improvement Trust) executed an agreement to lease a plot (No. 3) measuring 2044.4 sq. yards in favour of M/s Mehta Constructions and Industrial Corporation Pvt. Ltd. on 17th July 1957. However, this agreement was never followed by the formal execution of a lease deed, and Clause 24 of the agreement explicitly stated that no rights, title, or interest would be created in favour of M/s Mehta Constructions until the lease deed was executed.

In 1972, M/s Mehta Constructions entered into an agreement to sell the plot to M/s Pure Drinks Pvt. Ltd., and in 1985, a sale deed was executed. However, since the lease was never executed, M/s Mehta Constructions had no rights to transfer. Subsequently, M/s Pure Drinks Pvt. Ltd. went into liquidation, and in 2000, the plot was sold at an auction conducted by the Honourable Delhi High Court in liquidation proceedings. S.G.G. Towers Pvt. Ltd. (the first respondent) purchased the plot in the auction, which was confirmed by the Honourable High Court.

The DDA, challenging the validity of the auction, argued that M/s Mehta Constructions had never acquired any rights in the land and thus could not sell or transfer the plot. The DDA contended that the auction sale was illegal as no rights had been created in favour of M/s Mehta Constructions, and no prior consent from the DDA had been obtained for the transfer.

Arguments from Both Parties:

The DDA contended that the agreement to lease executed in 1957 did not create any legal rights because the formal lease deed was never executed. According to Clause 24 of the agreement, no rights, title, or interest could be transferred unless the lease deed was executed and registered. As M/s Mehta Constructions did not fulfil the conditions for the execution of the lease deed, it never acquired any leasehold rights, making any subsequent transfer of the plot, including the auction sale, invalid. The DDA further argued that the plot, being Nazul land owned by the Union of India, could only be transferred in accordance with the Delhi Development Act, 1957 and the Delhi Development Authority(Disposal of Developed Nazul Land) Rules, 1981, which required the prior consent of the DDA.

On the other hand S.G.G. Towers, the first Respondent, argued that the DDA had not contested the transactions between M/s Mehta Constructions and M/s Pure Drinks at any earlier stage. They claimed that the DDA had failed to challenge the auction process, and thus, the auction sale was legal. The Respondents further submitted that the sale was confirmed by the learned Single Judge of the Honourable Delhi High Court, and no interference was necessary with the sale as the proper procedures had been followed.

Supreme court

The Honourable Supreme Court, in its judgment, confirmed that the lease deed was never executed between the DDA (Delhi Development Authority) and M/s Mehta Constructions, and therefore, no rights, title, or interest in the plot were created in favour of M/s Mehta Constructions. Since no rights were transferred to M/s Mehta Constructions, the subsequent sale to M/s Pure Drinks and eventually, the auction sale to S.G.G. Towers was invalid. The Court observed that the first respondent, S.G.G. Towers, could not claim ownership or leasehold rights over the plot because the original agreement to lease did not create any rights in the first place.

Regarding the issue of unearned income, the Court upheld the Division Bench’s decision not to pass any order concerning it. The Court ruled that as multiple claims were pending in the liquidation proceedings, it was inappropriate to direct any of the available funds toward the payment of unearned income. The Court further clarified that if the first Respondent wished to regularize the sale, it could apply to the DDA for the payment of unearned income or any other required amount, which the DDA would consider according to the law.

The Court also made it clear that S.G.G. Towers had no legal claim to the land as it could only claim any rights that M/s Mehta Constructions or M/s Pure Drinks may have had under the lease agreement. The first Respondent’s rights were limited to whatever M/s Mehta Constructions possessed, which, in this case, were non-existent.

Conclusion

In conclusion, the Honourable Supreme Court dismissed the appeal filed by the DDA, but the Court emphasized that S.G.G. Towers was not entitled to either ownership or leasehold rights over the plot. Since no formal lease deed was executed, no rights were transferred to M/s Mehta Constructions or M/s Pure Drinks, and the auction sale did not confer valid rights to the first respondent. The Court left open the possibility for the DDA to seek remedies for possession or the recovery of unearned income. The Court also noted that if S.G.G. Towers wished to regularize the sale, it could approach the DDA, which would consider the matter in accordance with the law.

 

Kavya Sri

Associate

The Indian Lawyer & Allied Services

Please find below the YouTube Link for” IMPORTANCE OF LIMITATION IN LAW” (Episode 59: The Indian Lawyer Legal Tips)

https://www.youtube.com/watch?v=82iCFvFsS6o

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