Regency Inc. & Ors. vs The State Of Maharashtra & Ors.

By this Petition filed under Article 226 of the Constitution of India, the Petitioners are challenging the impugned order dated 25th April 2017 passed by Respondent No.2. They are challenging the Demand Notice dated 12th June 2017 issued by Respondent No.3. The Petitioners therefore seek quashing and setting aside of the said impugned order and Demand Notice.

The facts leading to the filing of the present Petition are as follows. The Petitioners are residing and/or having their offices at the addresses mentioned in the cause title. Respondent Nos.2 and 3 are the Chief Controlling Revenue Authority and the Collector of Stamps, Thane (City), respectively, and they have their offices at the addresses mentioned in the cause title. The State is represented through the Principal Secretary, Revenue and Forest Department, whose office is at Mantralaya, Mumbai. M/s. MRM Associates, through its partners, namely Petitioner Nos.2 to 5, including Mr. Suresh P. Jain, Mr. Lalit K. Bapna (Jain) and Mr. Neeraj C. Gupta, had applied to MIDC for grant of lease of land and premises bearing Plot No. R-3 situated in the T.T.C./Nerul Industrial Area. The said plot measured about 23,967 sq. mtrs. M/s. MRM Associates paid an amount of Rs.35,29,62,100/- to the CEO of MIDC, Mumbai, towards the premium payable for the grant of the said plot., on 10th February 2005, the Agreement to Lease between MIDC and M/s. MRM Associates, through its partners, was submitted before Respondent No.3 for adjudication under Adjudication No. ADJ/1512/2005.

On 18th March 2005, Respondent No.3 adjudicated the said Agreement to Lease and determined the stamp duty payable at Rs.36,00,215/-. The said amount was paid by M/s. MRM Associates through its partners., on 24th March 2005, the Agreement to Lease was executed between MIDC and M/s. MRM Associates through its partners. On the same day, the Agreement was registered with the Sub-Registrar under Registration No. TNN11/1494/2005. Subsequently, by letters dated 11th and 17th September 2009, M/s. MRM Associates requested MIDC to divide Plot No. R-3 into two separate portions, namely Plot No. R-3A admeasuring 16,776.9 sq. mtrs. and Plot No. R-3B admeasuring 7,190.1 sq. mtrs. By its letter dated 22nd December 2009, MIDC permitted the subdivision of Plot No. R-3 into the said two portions., on 29th December 2009, M/s. MRM Associates was divided into two groups. The group consisted of three partners, namely Mr. Suresh P. Jain, Mr. Lalit K. Bapna (Jain) and Mr. Neeraj C. Gupta, who formed M/s. Mikonic Structures. The second group consisted of four partners, namely Petitioner Nos.2 to 5, who formed Petitioner No.1.

On 17th March 2010, a Supplementary Agreement to Lease was executed between MIDC as the Part, M/s. MRM Associates through its partners as the Second Part and Petitioner No.1 through its partners, Petitioner Nos.2 to 5, as the Third Part. The said Supplementary Agreement related to the subdivided portion known as Plot No. R-3A in the T.T.C./Nerul Industrial Area, admeasuring 16,776.90 sq. mtrs. The said Supplementary Agreement was submitted before Respondent No.3 for adjudication on 10th March 2010 under Adjudication No. ADJ/187/2010. Pursuant to the order passed by Respondent No.3, stamp duty of Rs.1,30,72,250/- was paid. On 17th March 2010, the Supplementary Agreement was registered with the Sub-Registrar under Registration No. TNN3/01695/2010. Subsequently, on 30th October 2015, the Petitioners received a notice from Respondent No.3 stating that there was a short levy of stamp duty of Rs.25,19,725/- on the Supplementary Agreement registered on 17th March 2010. The Petitioners replied to the said notice on 2nd December 2015. In the reply, the Petitioners contended that Respondent No.3 had no jurisdiction to reopen the matter in view of the judgment of the Supreme Court.

On 1st February 2016, the Petitioners received a Summons from Respondent No.2 requiring them to remain present in Revision Case No.17/2016. The Petitioners filed their Written Submissions before Respondent No.2 on 5th April 2016. On 25th April 2017, Respondent No.2 passed the impugned order. The said order was dispatched to the Petitioners. The Petitioners received the impugned order on 22nd May 2017 and again received the same order on 25th May 2017., on 12th June 2017, the impugned Demand Notice was dispatched to the Petitioners and was received by them. The Petitioners have therefore filed the present Petition challenging the said order and Demand Notice.

Mr. Datar, learned Advocate for the Petitioners submits that an Agreement to Lease dated 24th March 2005 was executed between MIDC and Petitioner Nos.2 to 5, being partners of M/s. MRM Associates. Under the said Agreement to Lease, MIDC had agreed to grant a lease in respect of the land known as Plot No. R-3 situated in the T.T.C./Nerul Industrial Area, within the village limits of Sarsole, Taluka Thane, District Thane, admeasuring about 23,967 sq. mtrs. The grant of lease was subject to the conditions mentioned in the said Agreement to Lease. According to the learned Advocate, a reading of the Agreement clearly shows that it was only an Agreement to Lease and was not a Lease Deed. The learned Advocate for the Petitioners submits that, on the basis of the above facts, Respondent No.2 initiated proceedings under Section 53A of the said Act. The proceedings were numbered as Revision Case No.17 of 2016. The Petitioners appeared in the said proceedings and filed their Written Submissions before Respondent No.2.

The learned Advocate for the Respondents submits that it is not disputed that CIDCO had initially allotted Industrial Plot No. R-3 to M/s. MRM Associates, which was a partnership firm consisting of seven partners., CIDCO permitted the subdivision of the said plot in the proportion of 70% and 30%. According to the Respondents, the original partnership firm, M/s. MRM Associates, transferred its leasehold rights in the property in favour of two separate and independent partnership firms. According to the Respondents, such transfer amounts to an assignment of leasehold rights.

The contention of the Non-Applicant is that the Licensee, M/s. MRM Associates, was divided into two firms, namely M/s. Mikonic and M/s. Regency Inc., which is the Non-Applicant. CIDCO accordingly permitted the subdivision of the whole of Plot No. R-3, Sector No.14, situated in the Trans Thane Creek/Nerul Industrial Area, into two plots, namely Plot No. R-3/A and Plot No. R-3/B. The Non-Applicant executed the Supplementary Agreement in respect of the portion which came to its share, namely Plot No. R-3/A. It is submitted that the Lower Authority had correctly adjudicated the document and held that it was duly stamped. Therefore, according to the Non-Applicant, an amount in excess of the required stamp duty has already been deposited.

It is contended that the Audit Wing failed to properly consider that the Lower Authority had no power to separately determine the market value of the property. According to the Non-Applicant, the property had already been subdivided by CIDCO and, therefore, Rule 4(6) was applicable to the present case. The contention is that the stamp duty could not have been determined by taking a separate and independent market value of the subdivided property.

Upon seeing the pleadings, the submissions of the learned Advocates from both sides, the Agreement to Lease dated 24th March 2005 and the Supplementary Agreement dated 17th March 2010, the main question before the Court is whether the document dated 24th March 2005 created a lease in favour of M/s. MRM Associates, or whether it was only an agreement under which the lease was to be given at a later stage. This question is important because the Respondents proceed on the basis that M/s. MRM Associates had already obtained leasehold rights and that such rights were transferred to two separate partnership firms.

The Agreement to Lease dated 24th March 2005 has to be read as one complete document. The document calls the transaction an “Agreement”. It states that the Licenses had approached the Grantor for grant of a lease of the land and premises and that the Grantor had agreed to grant the lease on certain terms and conditions. It records that Rs.35,29,62,100/- was paid towards premium. Thus, from the document, it appears that at that stage there was an agreement for grant of lease after the conditions in the agreement were completed. The Schedule describes the land as Plot No. R-3, having an area of 23,967 sq. metres or thereabout. These facts are seen from the original document placed before the Court.

There is another important part of the same document. Clause 2 specifically considers whether the agreement created any demise in the land. It says that nothing contained in the agreement shall be treated as a demise in law and that the Licenses would not get any legal interest in the land until the lease was executed and registered. Therefore, the document says that there was no demise. It says that until the actual lease was executed, the Licenses would only have a licence for carrying out the terms of the agreement. Therefore, in the present case, the Court is not required to find the intention of the parties only from unclear words. The parties have stated that there would be no demise and no legal interest in the land until the lease was executed and registered. For this reason, the document cannot be treated as creating a present lease merely because it was registered or because a substantial amount was paid towards the premium.

The other terms of the Agreement show the same position. The Licenses were required to complete different conditions before the lease could be granted. They were required to construct the residential building and follow the requirements of the competent authority. They were required to establish a co-operative housing society within the period mentioned in the Agreement. A time was fixed for commencement and completion of the construction. After fulfilment of these requirements, the Grantor was to grant the lease in the prescribed form. These terms show that the parties had not treated the lease as already completed.

Clause 7 is important in this regard. It provided that the Licenses were to establish a co-operative housing society within three years from the date of the Agreement to Lease. Until the society was registered, the land was to continue to remain subject to the conditions of the Agreement. Clause 8 provided that after construction of the residential buildings and certification of the same, and after fulfilment of the other conditions, the Grantor would grant the lease in duplicate in the form mentioned in the Agreement. Thus, the actual lease was to take place at a later time.

The Supreme Court in State of Maharashtra v. Atur India (P) Ltd., (1994) 2 SCC 497 has explained the difference between an agreement to lease and a lease. Relying upon Woodfall, the Supreme Court observed:

The Supreme Court held that in the case of a lease there must be words showing a demise. Relying upon Woodfall, it observed:

The Supreme Court referred to Hill & Redman and explained the difference in the following words:

The Supreme Court held that whether a document is a lease or an agreement for lease depends upon the intention of the parties. Such intention has to be understood by looking at all the relevant circumstances. It held that where a document only binds the parties to create and accept a lease in future, it is an executory agreement for a lease. Such document does not become a lease only because the person who is to take the lease enters into possession.

When this principle is applied to the present case, the intention of the parties becomes quite clear. The Agreement says that there is no demise. It says that no legal interest would arise until the lease was executed and registered. Therefore, there is no proper basis to hold that the Agreement dated 24th March 2005 created a present leasehold estate in favour of M/s. MRM Associates.

The Supreme Court in Atur India considered the decision in Green v. Bowes-Lyon, (1960) 1 All ER 301. It explained the difference between a document which creates an estate and a document which creates only contractual rights and obligations. The Court observed:

This difference applies to the present matter. The Agreement dated 24th March 2005 created rights and obligations between MIDC and M/s. MRM Associates. It did not create a present estate in the land. MIDC was required to grant the lease after the conditions were fulfilled. M/s. MRM Associates was required to comply with those conditions.

The position under Indian law, as explained by the Supreme Court with reference to Mulla, is clear. The Supreme Court observed:

The present document comes within the second part of this statement. It was an executory agreement. The parties had agreed that the lease would be given later after the conditions mentioned in the Agreement were fulfilled.

The decision in Tiruvenibai v. Lilabai, AIR 1959 SC 620, which was considered by the Supreme Court in Atur India, shows the same position. An agreement which only gives a person a right to ask for execution of a lease, without creating a present and immediate demise, is different from a lease. The expression “agreement to lease” refers to a document which does not create an immediate demise, unless its actual terms show that it does so.

The finding of the Supreme Court in paragraph 29 of Atur India is useful in the present case. The Supreme Court held:

The facts of the present case are even more clear because there is an express term in the Agreement that there would be no demise and no legal interest until the lease was executed and registered. Therefore, the relationship of lessor and lessee did not come into existence merely because the Agreement to Lease was executed and registered.

The Respondents have strongly relied upon the fact that M/s. MRM Associates was originally a partnership firm having seven partners and that, after the subdivision, the rights relating to the two portions came to be held by two separate partnership firms. According to the Respondents, this amounted to an assignment of leasehold rights. This submission, however, cannot be accepted in the manner in which it has been made.

The difficulty with this submission is that it assumes that M/s. MRM Associates already had leasehold rights. This assumption is against the clear terms of the Agreement to Lease. A person cannot assign an existing leasehold estate when the document relied upon by that person did not create such leasehold estate. Under the Agreement, M/s. MRM Associates had a contractual right to obtain a lease after fulfilling the conditions. It did not have a present leasehold estate.

The Supplementary Agreement supports this position. Its recitals refer to the Agreement to Lease dated 24th March 2005 as the “Principal Agreement”. They state that under the said Agreement the Grantor had agreed to grant the lease after the Licenses performed and observed the obligations and conditions contained in the Principal Agreement. The Supplementary Agreement records the division of Plot No. R-3 into Plot No. R-3/A and Plot No. R-3/B and the transfer of the interest or benefit of the Agreement in respect of the respective portions in favour of the transferees.

The wording of the Supplementary Agreement is again important. Clause 1 states that the Supplementary Agreement is supplemental to the Principal Agreement. Clause 2 provides that the Principal Agreement would be understood as if the Grantor had entered into it with the transferees and that the transferees would observe and perform the terms and conditions of the Principal Agreement. Most importantly, Clause 3 states that after the transferees observed the terms and conditions, “the Grantor will grant, and the firm will accept the lease”, which was to be executed by the parties in duplicate.

This clause gives a clear indication about the nature of the transaction. If M/s. MRM Associates had already received a lease, there was no reason for the Supplementary Agreement to say that the Grantor would grant the lease to the transferees. The fact that the lease was still to be granted shows that what was transferred was the contractual benefit and the obligations under the Agreement to Lease. It was not an existing leasehold estate.

Therefore, the submission of the Respondents that the subdivision and the later arrangement amounted to an assignment of leasehold rights cannot be accepted. The subdivision permitted by MIDC may have changed the description and area of the respective plots. It may have resulted in the contractual rights and obligations under the Principal Agreement being held in favour of the respective transferees. But this did not change the original Agreement to Lease into a lease.

The same conclusion is supported by paragraph 30 of Atur India. The Supreme Court, after treating the original transaction as an agreement to lease, considered the transfer of the benefit of that agreement and observed:

Therefore, even if it is accepted that the benefit of the Agreement to Lease was transferred to the new partnership firm, that fact by does not show that an existing leasehold estate was assigned. The Supreme Court has held that the benefit of an agreement can be assigned. The Supplementary Agreement in the present case appears to operate in that manner.

The submission of the Respondents that the Lower Authority had correctly treated the document as duly stamped and that the Non-Applicant had paid excess stamp duty does not answer the main issue. The question is whether additional stamp duty could be demanded by treating the transaction as an assignment of leasehold rights or as a separate transfer of an existing leasehold interest. For deciding this question, the nature of the original transaction has to be correctly understood.

The Petitioners have pointed out that the original Agreement to Lease had already been placed before the competent authority for adjudication and stamp duty of Rs.36,00,215/- had been paid. The Supplementary Agreement was submitted for adjudication and stamp duty of Rs.1,30,72,250/- was paid pursuant to the order of the competent authority., the notice dated 30th October 2015 alleged short levy of Rs.25,19,725/-. The earlier adjudication by may not stop a authority from using a power which is available under law. But before making such an additional demand, the authority had to properly understand the nature of the document and the transaction recorded in it.

On this important point, the impugned decision cannot be sustained. It treats the transaction as an assignment of leasehold rights without properly considering the express term in the Agreement to Lease that no demise was created until the lease was executed and registered. It does not give proper effect to the corresponding term in the Supplementary Agreement, which says that the lease would be granted and accepted by the transferees.

The submission of the Petitioners that the original document was an Agreement to Lease and not a Lease Deed is therefore supported by the documents. This is not merely a name given to the document by the Petitioners after the dispute started. The actual terms of the document support it. The document says that the lease was to be granted after the conditions were fulfilled. It expressly excludes a demise. It says that legal interest would arise only after execution and registration of the lease. The Supplementary Agreement proceeds on the basis that the lease was still to be granted.

The submission regarding Rule 4(6) needs to be considered. The Respondents say that the Audit Wing did not properly consider that the Lower Authority had no power to separately determine the market value because the subdivision had been carried out by CIDCO and Rule 4(6) was applicable. To this extent, the Petitioners' grievance has some force because the market value cannot be decided without looking at the actual nature of the transaction and the terms under which CIDCO permitted the subdivision. The Supplementary Agreement records that CIDCO permitted the original Plot No. R-3 to be divided into Plot No. R-3/A admeasuring 16,776.90 sq. metres and Plot No. R-3/B admeasuring 7,190.10 sq. metres.

However, it is not necessary to finally decide the complete question about the manner in which market value was required to be calculated under Rule 4(6). The reason is that the basis of the additional demand cannot be sustained. If there was no assignment of an existing leasehold estate, the authority could not impose additional stamp duty by treating the transaction as such assignment only because the original firm was divided and the contractual benefit came to be placed in favour of two different firms.

It may be accepted that the transaction brought a change in the persons who were to receive the benefit of the proposed lease. It may be accepted that the original partnership firm was divided into two groups and that CIDCO permitted the subdivision of the plot. But these facts do not change the legal nature of the original Agreement. A change in the persons entitled to the benefit of an agreement to lease does not by mean that an existing leasehold estate was assigned.

The important terms of both documents therefore have to be given their proper meaning. The original Agreement says that there is no demise and no legal interest until the lease is executed and registered. The Supplementary Agreement says that the Grantor will grant the lease to the transferees. Both provisions point in the same direction. They show that the parties were dealing with an agreement for grant of lease in future. They were not dealing with an already completed lease.

I, therefore, find that the Agreement to Lease dated 24th March 2005 did not create any present leasehold interest in favour of M/s. MRM Associates. There was no present demise under that document. The relationship of lessor and lessee did not come into existence merely because the Agreement was executed and registered. The actual lease was to be executed later after the conditions contained in the Agreement were fulfilled.

I find that the Supplementary Agreement dated 17th March 2010 did not assign any existing leasehold estate of M/s. MRM Associates to Petitioner No.1. What was held and transferred was the benefit and the corresponding obligations under the Agreement to Lease in respect of the subdivided Plot No. R-3/A. The clear terms of the Supplementary Agreement show that the actual lease was still to be granted to the transferees.

The decision in Atur India (P) Ltd. therefore supports this conclusion. The Supreme Court has made a clear difference between a transaction which creates an estate in land and one which creates only contractual rights and obligations. In the present matter, the documents show that the transaction was of the second kind. Therefore, the basic ground on which the impugned order dated 25th April 2017 proceeds, namely that the Petitioners had acquired or transferred leasehold rights under an existing lease and that the Supplementary Agreement amounted to assignment of such leasehold rights, cannot be accepted. The Demand Notice dated 12th June 2017 which follows from the same finding cannot remain.

The Petitioners are therefore entitled to succeed. The impugned order dated 25th April 2017 passed by Respondent No.2 and the Demand Notice dated 12th June 2017 issued by Respondent No.3 are liable to be quashed and set aside.

In view of the foregoing discussion, and upon overall assessment of the material record, the following order is passed: