Mysore Asbestos Limited vs The State of Karnataka and Others

Anand Byrareddy, J.—1. Heard the learned Senior Advocate Shri K.G. Raghavan appearing for the Counsel for the petitioner and Shri A.G. Shivanna, learned Additional Advocate General appearing for the State as well as the learned Counsel Shri H.V. Devaraju, appearing for the Counsel for respondent No. 4.

It is the case of the petitioner that the petitioner was a Government of Karnataka undertaking and had later attained the status of a private limited company. It is stated that in the year 1966, the Department of Industries and Commerce had identified a plot of land bearing Nos. 67 and 81 of Kadavinakote village of Holenarasipura Taluk, measuring 16 acres 32 guntas, to establish an Asbestos Cement Factory and had applied seeking allotment of the said land to the State Government.

The Deputy Commissioner is said to have made a proposal to the Divisional Commissioner recommending allotment of 16 acres 32 guntas of the said land in favour of the erstwhile Mysore State Industrial Investment and Development Corporation Limited, (MSIIDC), subject to payment of Rs. 25/- per acre and accordingly, the State Government had sanctioned the proposal of the Divisional Commissioner and the land was granted to the Department of Industries, which in turn, handed over the same to the MSIIDC. Thereafter, the State Government is said to have incorporated a company called M/s. Mysore Asbestos Limited (MAL), on 28.3.1966, with an authorized share capital of 20,000 shares of Rs. 100/- each and a subscribed share capital of 2290 equity shares of Rs. 100/- each. M/s. Mysore Iron and Steel limited (MISL) had subscribed to 2000 shares, the MSIIDC subscribed to 200 shares and other departments of the Government had subscribed to the remaining 90 shares.

In the year 1967, the shares of MAL are said to have been transferred in favour of MSSIIDC and on transfer of the entire subscribed share capital in its favour, MSIIDC became the sole shareholder of the company with a subscribed share capital of 4050 shares. The share transfer certificates held by the different departments of government also stood transferred to MSIIDC. The share transfer certificates are produced and marked as annexures to the petition.

MAS is said to have entered into a registered lease on 10.12.1969 with M/s. Agro Industrial Development Consortium Limited, (AIDCL), a public limited company agreeing that the lessor Company, in order to avoid risks, decided to lease out the factory premises for a fixed rent of Rs. 1000/- per annum payable in quarterly instalments of Rs. 250/- for a period of one year commencing from 1.11.1969. This was a registered lease deed.

Subsequently, MSIIDC, which was rechristened as KSSIDC transferred 2050 shares, out of the authorized share capital of 4050 shares in favour of two private individuals. It is stated that 2000 shares of Rs. 100/- each were transferred in favour of one P.C. Srinivasa Murthy and 50 shares of Rs. 100/- each were transferred in favour of one P.S. Narayana. Thus, the controlling interest in MAL, the petitioner company was transferred into the hands of private individuals and the petitioner - company ceased to be a Government undertaking.

In the year 1991, the KSIIDC decided to disinvest its equity shares in the petitioner - company and accordingly offered to sell its shares to the other shareholder namely, Srinivasa Murthy for a premium. The KSIIDC therefore offered to sell its entire remaining stock of 2000 shares in the petitioner - company to P.C. Srinivas Murthy at the rate of Rs. 125/- per share. P.C. Srinivas Murthy is said to have accepted the offer of KSIIDC and paid a sum of Rs. 2,50,000/- for the transfer of shares and he had requested the KSIIDC to transfer the shares in favour of himself and his family members namely, Dr.S. Radha, S. Karthik S. Murthy and Anjana S. Murthy and accordingly, the shares were transferred in the name of P.C. Srinivasa Murthy and his family members and the share certificates were handed over to them. It is thus claimed by the petitioner that from the year 1994, the petitioner became a company owned and controlled by individuals, who had paid the value of the shares to the KSIIDC, which had initially floated the company. In other words, the family members of P.C. Srinivas Murthy were the only shareholders of the petitioner company. It is stated that neither the State nor the KSIIDC had any right over any of the assets of the company, including the land measuring 16 acres 32 guntas, which was the sole property of the company.

The petitioner - company thereafter continued the industry in the name and style of MAL. In this regard, the erstwhile Karnataka Electricity Board, had issued a legal notice through their advocate dated 22.12.1997 making a demand of arrears of electricity charges in a sum of Rs. 50,173/- with interest thereon, which is produced as proof of a factory having been run on the premises in question. Similarly, an endorsement issued by M/s. Chamundeshwari Electricity Supply Company Limited, dated 26.5.2005, transferring the electricity meter in favour of one Karthika Srinivasa Murthy is also produced. A telephone bill issued by M/s. Bharat Sanchar Nigam Limited, of the factory premises of the petitioner and 14 photographs of the factory premises are also produced.

These documents are apparently salvaged by the petitioner in seeking to assert the above circumstances of an industry having been run on the premises, for it is apparent that the petitioner is not in possession of the documents and records of the company in question. It is also stated that the petitioner had filed annual returns during the regular course of business to the Department of Company Affairs wherein the list of present and past members of the company was indicated.

A copy of the returns is annexed to the petition.

Similarly, the transfer form in the prescribed format, a copy of which is produced, is also to establish the above circumstances. The documents produced at Annexures Y, Z, AA, AB, AC, AD, AE, AF, AG are all in this direction.

It is stated that the khata of the property stood in the name of the petitioner and the khata certificate issued by the authorities and the mutation entry of the revenue authorities indicating the transfer of khata, as entered in the Mutation Register at MR 17/68-69, are produced. Therefore, it is after a period of 40 years after the grant, that the Deputy Commissioner of the District is said to have issued a show-cause notice dated 11.10.2005, wherein it was claimed that the land had been allotted to KSIIDC for the purpose of establishing an industry run by the petitioner in 1969 and eversince, no activities were being conducted and the land was neglected and therefore, it had defeated the very purpose of grant, apart from which, there was violation of the grant conditions, in that, the KSIIDC seemed to have leased out the land in favour of M/s. Agro Industrial Development Consortium Limited (AIDCL) and hence, the Deputy Commissioner had proposed to cancel the grant and called upon the KSIIDC to show-cause as to why such cancellation should not be made. It is pointed out that as on the date of issuance of the said show-cause, the KSIIDC had absolutely no interest in the petitioner-company and it is therefore not unusual that there was no reply to the show-cause notice by KSIIDC.

The Deputy Commissioner thereafter had proceeded to submit a report to the Government to the effect that KSIIDC had not filed any objections and a notice issued to the lessee had been returned. It was further indicated that the Assistant Commissioner had submitted a report to the effect that no activities were being carried on in the land and therefore, the grant deserves to be cancelled. The Deputy Commissioner had also recommended that the lands be granted to Karnataka Power Transmission Corporation Limited (KPTCL), for the purpose of establishing a 220/66 KV Distribution Centre.

The State Government, in turn, has sought for a report by their letter dated 12.12.2005, from the Deputy Commissioner as to the state of the land. The Deputy Commissioner, in turn, had indicated that no revenue had been paid in respect of the lands and the lands had not been utilized for the purpose for which it was granted and it was the State which could cancel the grant and had accordingly, recommended that the grant be cancelled and the land be allotted to KPTCL. It is at this juncture that the petitioner - company had learnt about the proposal to cancel the grant and therefore, it had immediately filed its objections as on 30.10.2006, pointing out that the Deputy Commissioner had no power to cancel the grant and the petitioner company was the absolute owner of the land and that an industry was being run and documents were produced to support its claim. The Deputy Commissioner, in turn, had issued an endorsement dated 13.2.2006, indicating that the objections could not be considered as they were not submitted within the stipulated time and the land was being proposed to be granted to KPTCL.

The petitioner had then approached the first respondent requesting the Government to grant an opportunity of hearing before acting upon the recommendation and report of the Deputy Commissioner, Hassan. The Principal Secretary, inspite of having received such a representation, did not provide an opportunity of hearing to the petitioner and the State Government, by an order dated 17.4.2006, had accepted the proposal of the Deputy Commissioner and directed him to cancel the grant in accordance with the Rules and that the very same lands were directed to be granted to KPTCL at 50% of the market value.

The Deputy Commissioner, in turn, had addressed a letter to the State Government to indicate that the land had been granted by the State Government and therefore the State Government alone was competent to cancel the grant. It was further requested that the order be modified insofar as directing him to cancel the grant. The State Government accordingly, had issued an order canceling the grant and also passed an order to the effect that prior approval for the grant of land to the KPTCL at 50% of the market value was being extended. Pursuant to the said order, the Deputy Commissioner had passed an order granting the land to the KPTCL at an upset price of Rs. 5,48,800/-. The Tahsildar was directed by the Deputy Commissioner to hand over the land to the KPTCL in accordance with the rules. It is in this background that the petitioner is before this court to contend that the State Government absolutely had no jurisdiction to cancel the grant and that too without hearing the petitioner and hence it was wholly illegal or arbitrary.

The order dated 10.5.2006 was promptly challenged before this court in a writ petition in WP 13091/2006. There was an interim order on 19.9.2005, staying the operation of the order passed by the second respondent. Subsequently, at the instance of the respondents, the order was modified holding that the interim order passed shall not preclude the fourth respondent from proceeding with the installation work subject to the undertaking given by the fourth respondent that they would not claim any equity and any development made in the land would be subject to the result of the writ petition. The writ petition was allowed on 4.9.2007, directing respondents No. 1 and 2 to afford an opportunity of hearing to the petitioner and to dispose of the matter with expedition. Pursuant to which, the petitioner had appeared before the second respondent and proceeded to file objections. However, the second respondent had not chosen to hear the matter nor intimated the petitioner about any proposed action. It is by chance that the petitioner had learnt about the initiation of the proceedings by the first respondent.

It is the petitioner''s case that the first respondent did not choose to issue any notice or hear the petitioner, but however, the petitioner had appeared before the first respondent voluntarily and asserted its case. The first respondent had ultimately passed an order dated 4.6.2008 confirming the earlier order dated 10.5.2006, cancelling the grant of the land and confirming the grant in favour of the KPTCL.

Shri K.G. Raghavan, learned Senior Advocate would point out that from the above sequence of events, it is evident that the original grant made by the State Government was in favour of MSIIDC, a Government of Karnataka undertaking, which, in turn, was the promoter of MAL, which was incorporated by KSIIDC itself. Therefore, the shareholding in MAS, when it stood transferred in favour of private individuals, the assets of the company, including the land which was granted for the benefit of establishing an industry run by MAS, stood transferred and vested in the shareholders. It is in this fashion that the government land, which was granted to a Government of Karnataka Undertaking, ultimately passed on to the private hands. Such a transfer is indeed contemplated in law. As for instance, Section 19 of Specific Relief Act, 1963 (Hereinafter referred to as the ''SR Act'', for brevity), particularly, Section 19(e) as also Section 15(h), provide that when the promoters of a company have, before its incorporation, entered into a contract for the purpose of the company and such contract is warranted by the terms of the incorporation, provided that the company has accepted the contract and communicated such acceptance to the other party to the contract. In other words, the land having been granted to MSIIDC, who was the promoter of MAL and was the major shareholder and the entire shareholding in MAL having been transferred in favour of the private individuals, as afore-stated, the entire assets of the company also stood transferred in favour of the private individuals. This is the position in law and cannot be disputed.

The grant made was absolute one and there is no indication of any conditions imposed. The learned Senior Advocate would submit that the grant made in favour of MSIIDC, which was a Government of Karnataka undertaking, for the purpose of establishing an industry, by a company which was incorporated and promoted by MSIIDC, is an unusual circumstance and the Rules do not provide for grant of land for such purposes and therefore, the conditions made applicable under the Rules in respect of the grants made for agricultural purposes would be inapplicable and in the absence of any specific conditions made apparent from the recommendation made in the first instance for such grant by the Deputy Commissioner, as at Annexure-A, it would appear and the presumption would be that it is an absolute grant and when the same is transferred by virtue of the transfer of the shareholding to MAC, the shareholders of the petitioner company are indeed the absolute owners of the land. Therefore, while ignoring this glaring circumstance, the respondents having proceeded in the manner that they have, in seeking to cancel the grant on an imagined violation of breach of condition and to have granted the land in favour of the KPTCL, is wholly illegal and without jurisdiction, and has resulted in a gross miscarriage of justice insofar as the petitioner is concerned, of having been deprived of land otherwise than under due process of law.

The learned Senior Advocate would submit that the petitioner is fully conscious about the present circumstance where the KPTCL has, at expense, established a power transmission station and it would not be feasible or advisable to seek that the very land should be restored to the petitioner. The only other alternative would be, for the petitioner, to be paid a reasonable compensation in respect of the land, which has now been handed over to KPTCL or to grant alternative land of similar dimension.

While parting with the case, Shri Raghavan would submit that it is unfortunate that the petitioner has not been able to supplement the petition with complete documentation having regard to sheer lapse of time and the fact that the industry that was being run had to be closed on account of other circumstances, such as asbestos having been declared to be carcinogenic substance and there being no demand for asbestos products, the company had met with natural death and the records and other documents were totally lost over a period of time. It is thereafter that the respondents had stepped in to take over the land in the manner as aforesaid. However, the learned Senior Advocate would submit that enough prima facie material has been produced to establish the sequence of events and seeks appropriate relief.

The State Government has entered appearance and has filed statement of objections to admit that the land was granted in favour of MSIIDC for the purpose of locating an asbestos cement factory on behalf of the Department of Industries and that the petitioner had no right to claim any right over the property as the land was not sanctioned to the petitioner. The khata of the property stands in the name of MAC, which had been established by a Government of Karnataka undertaking. And from the date of grant in the year 1966, the MSIIDC had not started the cement factory and it is on this very ground on which the grant has been cancelled, namely, that the land has never been utilized for the purpose for which it was granted.

Secondly, the MSIIDC had, without seeking permission of the State Government, leased out the land to AIDCL in the year 1969 and therefore, this was the second ground on which the grant was liable to be cancelled and therefore, there is every justification in the cancellation of the grant and the land now having been granted in favour of KPTCL and a receiving station having been set up, which is a public purpose, there is no substance in the present writ petition and the claim of the petitioner is a speculative claim, which ought to be rejected with costs.

The contention that the petitioner has not been given an opportunity of hearing etc., is without merit, as no such opportunity is warranted, as the petitioner - company could not claim a right over the land in question.

Insofar as the contention that there were transfers of the shareholding in the MAC, which was a company incorporated and promoted by MSIIDC, is a fact that is not made known to the State Government, and the transfers are all private transfers, without the intervention of the State Government and would not bind the State in any manner. It is in this vein that the statement of objections are filed.

The learned Additional Advocate General would point out that even assuming that there are circumstances to indicate that the shareholding of MAC was transferred in favour of private individuals, where the land in question also stand transferred, is not a presumption that would automatically follow. In that, the grant was made in favour of MSIIDC and not in favour of MAC and this is an undisputed fact. When there is no conveyance by MSIIDC in favour of any other-third party, it cannot then be said that the property stood transferred in favour of either MAC or its shareholders. The grant was not absolute and was subject to conditions then prevailing in terms of the Karnataka Land Grant Rules, 1969 (Hereinafter referred to as the ''KLG Rules, for brevity). And even if the grant was one half grant, in that, the Rules contemplate only grant of land for agricultural purposes and even if the land was granted for an industrial purpose, in the present case on hand, no industry ever having been started or commenced, would render the very object of the grant as futile and infructuous and the grant having been cancelled in that light cannot also be faulted. The land admittedly was granted by the State Government and when the object of the grant was never achieved, it is open for the State Government to cancel such grant and allot or grant it for some other public purpose. This having been done in larger public interest, there is no scope for challenge at all, let alone by a private party, who seeks to lay claim over the land, which admittedly belonged to the State Government and was admittedly granted to a Government of Karnataka Undertaking and was also granted for the purpose of establishing a government company to run an industry, which as already stated, was never implemented. In that light of the matter, there is no illegality in the manner in which the respondents have proceeded. The factory having been abandoned decades ago and no other activity being carried on the land in question, the petitioner company now claiming to be in the hands of private individuals, laying claim to the land as real estate, is a speculative claim to usurp the government land and cannot be countenanced. Therefore, the learned Additional Advocate General would submit that there is no merit in the present petition and it ought to be dismissed.

The learned Counsel for the KPTCL would also chip in to say that they have paid good money in terms of the grant to the extent of 50% of the market value as on the date of the grant and at large expense in a sum of Rs. 36.00 Crore, they have established a Receiving Station and it is now futile for the petitioner to lay claim to the land, which is completely transformed and is no longer available for regrant or reallotment in favour of the petitioner.

By way of reply, Shri Raghavan would point out that it is unfortunate that the respondents seek to characterize the transfer as not being legal or the grant not being absolute and also seeking to characterise the transaction as fraudulent. For such alienations are made not against a private party, but against a Government of Karnataka Undertaking. It is being fully aware of the circumstance that the transfers have taken place in the manner known to law, which cannot be negated or wished away. The contention that no industry was ever started is contrary to the material on record. Where as KSIIDC has even expressed encomiums insofar as the manner in which the petitioner was working at points of time and has proposed that the shareholding of MSIIDC be taken over by the private shareholders and it is pursuant to which, the shareholding stood transferred at premium. In the absence of any material disclosed by the respondents, which would be expected to be a custodian of records of these transfers, to establish that it was a conditional grant and that it could be cancelled on the breach of those conditions, it is presumptuous on the part of the respondents to contend that there was a breach by virtue of an industry never having been started, which is proved to be incorrect and that the lease made in favour of the AIDCL by MAS in year 1969 as being violation of a condition, which enabled the respondents to cancel the grant 40 years later, which is not known to law. Hence, the learned counsel would submit that it would not be just and reasonable to direct the respondents to appropriate compensation for the extent of land that has now been resumed or to provide alternative land of similar dimension.

Given the facts and circumstances, the first point for consideration would be, (i) whether there was a grant with conditions attached thereto and (ii) whether the grant was only in favour of MSIIDC and it was never transferred in favour of MAC. In this regard, as rightly pointed out by the learned Senior Advocate Shri Raghavan, a property coming into being or being acquired by the promoters of a company and thereafter being transferred to the company through its shareholdings, is not unknown to law. In the present case on hand, the promoter was MSIIDC which was, in fact, granted land by the State Government. Thereafter, MAC having been incorporated and the land having been granted only for the purpose of establishing an industry through the MAC and such industry having been established and the shareholding of MAC having been transferred, as stated hereinabove, in favour of private individuals, indeed results in transfer of the granted land in favour of MAC and its shareholders and there can be no two opinions on this.

The only other aspect is whether there was violation of the grant and by virtue of which, the State Government was enabled to cancel the grant.

Having regard to the tenor of the recommendation for the grant of land made at Annexure-A to the petition, it must be presumed that it was an absolute grant for the conditions prescribed under the Rules then prevailing could not be imported into the grant made, for the reason that it was not in the nature of grant which is contemplated under the KLG Rules. This was a peculiar grant made in favour of the Government of Karnataka undertaking in order to establish a government company and to start an industry and such situation is not contemplated under the KLG Rules. Therefore, the State, in its wider power of being the owner of the land, has thought it fit to grant the same in favour of MSIIDC under section 91 of the Karnataka Land Revenue Act, 1964, which is the residuary power conferred on the State.

The other contention of the learned Additional Advocate General is that the conditions then prevailing would apply, cannot be readily imported into the circumstances in the absence of any records being available with the State, which is again unfortunate. For the State Government is expected to maintain records with care, especially in order to meet the circumstances such as this. The very idea of maintaining the records is to enable the State Government to defend its actions especially in such circumstances and when no records are produced by the State Government, it would not lie in its mouth to urge contentions which are not supported by any kind of documents. Therefore, it is left to the plain interpretation of this court as to what is the effect and scope of the undertakings and other assertions or propositions in the documents that are made available.

Incidentally, the lease in the year 1969 by MAC in favour of AIDCL is also not significant, except that it would indicate that MAC stood in the position of an absolute owner. If it could proceed to transfer by way of lease in favour of the said company, that by itself was not a circumstances which could be characterized as a violation of conditions of the grant in the absence of any such conditions being brought to the attention of this court. In any event, it was not being given away to a private party, but it was a transfer between two government undertakings, which has not resulted in lease of the land or transfer of the land, for the land has continued to remain with MAC after the expiry of the terms of lease. Therefore, it cannot be said that there was a circumstance whereby the State Government could cancel the grant and grant the land in favour of KPTCL. The entire exercise is without legal basis and without jurisdiction.

Assuming the grant was coupled with several conditions and that there has been a breach of those conditions, for the industry having never been set up or the grantee having proceeded to lease the land to a third-party, it can be accepted that the State Government could immediately take action to cancel the grant on that basis within a reasonable time from the date of breach, as no time is prescribed or no time is demonstrated as being a condition within which such action can be taken. The law is well settled that in all cases where time limit is not prescribed, the Government is expected to take action within reasonable time. As to what is reasonable time, can be with reference to the time prescribed under the Limitation Act, 1963, for the State Government to recover its property and even on that test, the State Government would fail in not having acted within time.

Hence looked at from any angle, the State Government cannot justify its actions and would necessarily have to foot the bill and in the present case, the bill would be the quantum of compensation payable to the petitioner. In order to reconcile the situation in the State proceeding to determine compensation, it shall be taken that 5.11.2005 shall be the date on which notification under Section 4(1) of the Land Acquisition Act, 1894 (Hereinafter referred to as the ''1894 Act'', for brevity), was sought to be issued and the State Government shall proceed on that basis in applying the provisions of the 1894 Act, in proceeding further. The petitioner would certainly be entitled to interest and other statutory benefits on that basis. The respondent shall determine the compensation accordingly. The petitioner would also have all rights that would be available to a land owner, whose land has been acquired under the 1894 Act. The State Government shall take further steps, as it deems fit, in terms of this order by appointing a competent officer as the Land Acquisition Officer (LAO), in order to determine the compensation. The LAO shall issue notice to the concerned, including the KPTCL, which is the beneficiary and then proceed to determine the compensation. The alternative is available to the State Government to provide equal extent of land, namely, 16 acres 32 guntas in the same vicinity. The State Government shall complete the process within a period of six months from the date of receipt of a copy of this order.

The petition stands disposed of.