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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
Dated this the 7th day of June, 2012
Before
THE HON’BLE MR JUSTICE HULUVADI G RAMESH
Regular Second Appeal 1789 / 2009
Between:
M/s K V Forgings Pvt Ltd# 198/1, Link Road, SeshadripuramBangalore - by its Managing DirectorSri K Vittal Rao, 77 yearsS/o Krishnaji Rao Appellant
(By Sri K Suman, Adv.)
And:
1 Karnataka Industrial Area Development Board# 14/3, 2nd Floor, Rashtrothana Parishat Bldg.Nrupathunga Road, BangaloreBy its Executive Member
2 Executive MemberKarnataka Industrial Area Development Board# 14/3, 2nd Floor, Rashtrothana Parishat Bldg.Nrupathunga Road, Bangalore Respondents
(By Sri I Gopalakrishna, Adv.)
2
This Appeal is filed under S.100, CPC praying to set aside the judgment dated 15.9.2009 in RA 31/2009 by the Prl. District Judge, Bangalore Rural District and the judgment dated 20.10.2008 in OS 154/2006 by the Civil Judge (Sr.Dvn.), Anekal.
This Appeal having been reserved for Orders on 18th April, 2012 the Court delivered the following:
JUDGMENT
The plaintiff Company represented by its Managing Director
is in second appeal against the dismissal of the suit by the Civil
Judge (Sr.Dvn.), Anekal in OS 154/2006 on 20.12.2003 and
confirmed in appeal before the Prl. District Judge, Bangalore Rural
District in RA 31/2009 on 15.09.2009.
Plaintiff filed a suit for declaration that the order dated
13.3.1997 by the defendants / Karnataka Industrial Area
Development Board is illegal, without any jurisdiction or authority
and to direct the defendants to execute and register absolute sale
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deed in respect of the suit schedule property in plaintiff’s favour and
for a permanent injunction. In the plaint it is stated, plaintiff, a
company incorporated under the Companies Act, is in possession
and enjoyment of industrial plot Nos.10 & 11 in Sy.Nos.44, 51, 50,
45, 39, 51, 64, 63 and 38 in Attibele Industrial Area, Anekal
measuring 48360 sq. mts for the purpose of manufacturing and
processing of alloy steel forging. On the initiative of the State
Government to encourage successful kannadigas living outside the
State to invest and earn in Bangalore, the Managing Director of the
plaintiff one Mr K Vittal Rao was invited to start an industry in
Bangalore. In this background, the said K Vittal Rao made an
application to the defendant / Board for allotment of industrial land
and such application was in the name and styled as M/s K V
Corporation. The schedule property was allotted to K V Corporation
in the year 1982 and it was put in possession of the suit property on
15.7.1982 as per the possession certificate issued by the 1st
defendant.
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It is stated, since the manufacturing activity and the turn over
of alloy steel forging was considerably large, the Managing Director
K Vittal Rao incorporated a company in the name and style – M/s K
V Forgings (Pvt) Ltd i.e., the plaintiff and the possession of the
schedule property was handed over by the defendants in favour of
the plaintiff company. There is also an endorsement to that effect on
the reverse of the possession certificate on 4.10.1983. The defendant
thereafter, executed a lease-cum-sale agreement on 12.10.1983 in
respect of the suit property in favour fo the plaintiff company and is
registered in the Sub-Registrar’s office at Anekal. As per the lease
agreement, the lease is for a period of eleven years computed 12 th
July, 1982 which comes to an end on 12th July, 1993. As per clause
7(a) of the deed, at the end of eleven years, the total amount of rend
paid by the lessee/plaintiff for the period of lease shall be adjusted
towards the value of the property as fixed by the lessor / 1 st
defendant. Clause 7(b) stipulates, as soon as it will be convenient,
the 1st defendant will fix the price of the schedule property at which
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it will be sold to the lessee and the lessee shall pay the balance value
of the property if any, after adjusting the premium and the total
amount of rent paid by the lessee. If on the other hand, any sum is
determined as payable by the lessor to the lessee after the
adjustment, the same shall be refunded to the lessee before the date
of execution of the sale deed. It is stated, plaintiff by the date of
lease, had paid advance/premium of Rs.1,21,440/- and he had also
been paying the annual rent fixed promptly and correctly. The cost
of the schedule property has been fixed at Rs.6,04,669/- and plaintiff
has made total payment of Rs.8,31,517/- on various dates and this
has been reflected in the statement of accounts furnished by the
Controller of Finance / Accounts Officer of the 1st defendant Board.
After obtaining the lease deed, plaintiff proceeded to put up
construction as per the approved plain and has put up huge industrial
sheds in the schedule property with a height of 40 – 50 feet as
required for steel alloy forging manufacturing activities. It is stated,
the said manufacturing activity involves huge noise pollution and the
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laws regarding prevention/control of noise pollution and
environmental protection stipulates the manufacturing activity of
steel alloy forging have to be done in an industry which has
considerable vacant space around it. This mandatory requirement is
enforced as manufacturing activity of steel alloy forging involves
production of high decibels of sound on account of the hammer
striking the forging. That apart, the striking of the hammer creates
heavy vibrations and the buildings, if any, will be affected by the
vibrations and therefore, it is necessary that considerable vacant
space be maintained in and around the industrial shed where the
manufacturing activity takes place. Accordingly, the plaintiff had
maintained the required vacant space. As there was some delay in
the production activity which arose only account of the defendant’s
not providing water supply to the plaintiff’s industrial unit and the
KEB was not providing the required continuous power supply, the
plaintiff’s investments in the project was lying locked without any
returns. The plaintiff company had raised loans for its project from
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the Karnataka State Financial Corporation and for this purpose, had
deposited the original lease deed and the possession certificate and
other documents to KSFC towards collateral security. The plaintiff
was unable to repay the loans in view of the fact that
production/manufacturing activity in the factory commenced only
during December 1987 though the construction of the unit was
completed in October 1985. With great difficulty, the plaintiff
managed to run the unit from 1987 up to 1994 and on 15.2.1994, the
KSFC sized the schedule property an the industrial shed invoking
the provisions of S.29 of the Sate Financial Corporations Act. Thus,
the production of the unit also came to a grinding halt and plaintiff
was unable to do anything till they repaid the entire loan / settle the
liabilities of KSFC. However, despite financial hardship, plaintiff
was able to raise loans from private sources and by selling the
personal assets of the Managing Director, repaid the entire dues to
the KSFC and thereafter, KSFC handed over possession of the
schedule property to the plaintiff around February 1996 and plaintiff
8
is yet to recoup its financial position so as to recommence its
production activity. The plaintiff has managed to pay the entire
installment due to the 1st defendant towards rent/adjustable land
value together with interest thereon and the plaintiff has not
willfully or otherwise, violated any of the terms and conditions of
allotment/lease deed dated 12.10.1983. It is stated, defendants
despite being aware of these aspects, have resorted to troubling and
harassing the plaintiff by unilaterally and arbitrarily demanding
certain amounts towards arrears of rent and later on, by falsely
stating that there is alleged violation of the terms and conditions of
the lease agreement and, for the first time on 2/5.8.1994, the
defendants wrote to the plaintiff falsely stating that plaintiff has
constructed only the factory shed and that there was no production
and called upon the plaintiff to furnish the certificate of investment
issued by a Chartered Accountant. It is averred, the defendants had
no authority whatsoever to issue any such letter after the expiry of
lease period i.e., 12.7.1993 and the defendants were duty bound to
9
execute the sale deed by collecting the land value, if any, that
remained after adjustment of final installment paid by the plaintiff.
Plaintiff had already paid the land value which was fixed/valued at
Rs.6,04,669/-. In stead of executing the sale deed, the defendants
arbitrarily and illegally called upon the plaintiff to furnish certain
details which were neither factually warranted nor legally required.
The plaintiff was always ready and willing to perform its obligations
under the lease deed. However, the defendants mechanically made
false and inconsistent allegations against the plaintiff and they had
no authority whatsoever to charge any penal interest and whatever
penal interest was there has been duly paid. On 6/8.1.1997, a notice
was received by the plaintiff wherein referring to clause 2(p) (1) (i)
to (iii) of the lease deed, it was alleged there has been non-utilization
of certain extent of area in the schedule property which tantamount
to violation of the terms and conditions of the lease-cum-sale
agreement and called upon the plaintiff to show cause why the
defendants should not determine the land in accordance with clause
10
4 of the agreement. Even before plaintiff could reply to that notice,
another letter dated 16.1.1997 calling upon the plaintiff to meet the
2nd defendant on 23.1.1997. However, plaintiff immediately replied
to the said letter that they had met the 2nd defendant many times and
have explained everything to him and that therefore it is not
necessary for them to meet on 23rd January. Further, a reply dated
29.1.1997 was also sent to the defendants.
However, on 15.3.1997, plaintiff received an order dated
13.3.1997 wherein without considering the cause shown by the
plaintiff in their letter dated 29.1.1997, defendants had passed an
order stating that the lease deed was determined and that they are
going to resume the land on 1.4.1997. The order also indicated that
if plaintiff was not present at the schedule property, resumption will
be done in their absence and thereafter, future clause 4 and 11 of the
lease agreement would become operative. Contending that the order
of resumption dated 13.3.1997 is arbitrary, illegal and unjust and is
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liable to be declared as null and void and that the defendants are duty
bound to execute the sale deed, plaintiffs filed the suit.
The defendants contested the matter. They have filed written
statement denying the plaint averments. It is stated, the suit is liable
to be rejected as the same is not properly valued. They have not
agreed to sell the suit property at the price of Rs.6,04,669/- and the
agreement dated 12.10.1983 relied on by the plaintiff does not state
the price at which the suit property would be sold. In fact, clause
7(b) of the agreement states that the price at which the suit property
would be sold by the defendants would be determined by the
defendants and therefore, the sum of Rs.6,04,669/- is not the
consideration for the contract of sale. As such, the valuation of the
suit under S.40(a) of the Karnataka Court Fees Act is incorrect. The
actual extent of land in occupation of the plaintiff is not 48360
sq.mtrs but 52,093 sq.mts. Mere expiry of eleven years period does
not confer any right on the plaintiff to demand execution of sale
12
deed. After thorough scrutiny by the defendants, the plaintiff was
found due and therefore, notices were issued. Further, as per the
project report and application form submitted by the plaintiff at the
time of allotment, plaintiff was to utilize an extent of 47,600 sq.mtrs
for its project. However, they had utilised only an extent of 1752.86
sq.mtrs as on 27.8.1994 and this is contrary to clause 2(p), 2(i) &
(iii) of the agreement and therefore, the show cause notice was
issued. It is contended, unless the plaintiff utilises the plot as per the
representation made in the application form, simply stating that the
project is implement, lease has expired, baseless demands are made,
etc., would not made its case any better. In fact, the final price as
contemplated under clause 7(b) has never been communicated to the
plaintiff and therefore, the question of plaintiff being entitled to
execution of the sale deed does not arise. It is true that the
resumption order dated 13.3.1997 was issued. The said order
clearly states, the reasons assigned by the plaintiff for non-utilization
is not acceptable and convincing. After the expiry of the lease,
13
transactions between the plaintiff and defendants is one of sale
agreement and it is always open to the defendants to refuse
execution of sale deed and take possession of the property, according
to law. It is stated, action would be taken in accordance with S.34 B
of the Karnataka Industrial Areas Development Act, 1966 and that
the defendants have the necessary power under the Act to supervise,
monitor and promote the growth of industries in the State and the
said power includes resumption of land for failure to comply with
the terms and conditions of allotment. Thus, contending that the
plaintiff is not entitled for any relief, defendants sought for dismissal
of the suit with exemplary costs.
Based on the pleadings the trial court raised as many as seven
issues. After hearing the arguments, while answering issues 1, 2, 4
to 6 in the negative, holding that the defendants prove that plaintiff
has violated the terms and conditions of the lease agreement and is
liable to be evicted from the schedule property by virtue of the
14
expiry of lease, the trial court dismissed the suit. Aggrieved by the
said order, plaintiff went up in appeal before the Prl. District Judge,
Bangalore Rural in RA 31/2009. By his order dated 15th September,
2009, the Prl. District Judge, while answering the points raised for
consideration, dismissed the appeal. Hence, this second appeal.
Heard the counsel representing the parties.
On 13.1.2010, this Court raised the following substantial
questions of law for consideration ::: The trial court having found
that the term of lease had expired without the defendant having
raised any question of violation of terms of lease-cum-sale
agreement, whether the trial court was justified in negating the
plaintiff’s suit and whether the first appellate court was justified in
affirming the finding of the trial court.
According to the appellant’s counsel, as per Ex.P2, the price
15
is fixed as per clause (2). At the end of lease period i.e., the lease
expires on 22.2.1992, the complete figure indicated is about
Rs.8,31,517/- and that has been paid. Several correspondence depict
that after the expiry of the lease, automatically the appellant is
entitled for execution of the sale deed and several documents at
Ex.P8 and P12 are the correspondence in this regard and there is no
violation or breach of conditions of lease.
According to the appellant’s counsel, in compliance with the
Pollution Control Board’s specification, space is left. However,
according to the respondents, after allotment space has not been
utilised and that has come in the way of continuation of lease and
confirmation of the lease cum sale. Thus, the stand of the
respondent-authority is contrary to the various regulations that
prevented the appellant from developing the property which was
leased to the entire extent. Referring to clause 7(b), respondent’s
counsel, on the contrary, has argued that the sale price is not fixed
16
and there is violation of the lease condition. The lessee has not
utilised the full space as per the terms and conditions of lease and the
lessor while fixing the price of the demised premises at which it will
be sold to the lessee would communicate it to the lessee. The
decision of the lessor in this regard will be final and binding on the
lessee. The lessee shall pay the balance of the value of the property
if any, after adjusting the premium.
In the reply to the letter dated 8.1.1997, it is intimated to the
respondent authority that the entire amount due has been paid to
them and also sought for execution of the sale deed. It is also
specifically stated they have no right whatsoever to enter upon the
unutilised portion of the schedule land and there is no unutilised
portion and that they are in possession of the land in question for
more than fourteen years and they became the owners of the suit
land and the respondent has no right making allegation of non-
utilization of the land after the lease period is over. The respondent is
17
once again imposing a condition which the appellant is not ready to
comply.
Further, in the alternative, it is argued as per Ex.D4 & Ex.P8,
amount paid is about Rs.8,31,517/- and the order dated 6.1.1997 at
Ex.P17 is not by the Executive Member and also it is not preceded
by any resolution and no action had been taken during the lease
period. Subsequently the defendant is disabled from taking any
action and also it is agreed that appellant is ready to pay Rs.75 lakhs
+ 6 lakhs towards land cost and penalty and the difficulty faced by
the appellant is, though the lease is of the year 1982, production
commenced only in October 1997. Meanwhile, there is financial
crisis and KSFC had taken over the premises in 1984 and later it was
taken back during 1996 and due to shortage of water and power,
second phase was not completed and without notice the respondents
have taken possession and accordingly, he has sought for allowing
the appeal. In support of his argument, appellant’s counsel has
18
relied upon the following decisions::
AIR 1971 SC 1071 - Century Spinning & Mfg. Co. Vs Ullasnagar
Municipality
AIR 1986 SC 806 – Union of India Vs Godfrey Philips India Ltd
1984 (1) SCC 125 – Mansaram Vs S P Pathak
2000(1) SCC 434 – Eshwardas Jain Vs Sohan Lal
ILR 2006 KAR 697 – Manjanna Vs R Shivanna
ILR 2009 KAR 60 – Nanjappa Vs Nanjappa
1979(4) SCC 393 – Prakash Chandra Vs Angadlal
ILR 2003 KAR 1622 – M/s Prakash Dal Mill Vs Govt. of Karnataka
Counsel for the respondents submitted, in a concurrent
finding both the courts below have declined the prayer of the
appellant/plaintiff which order does not call for interference. In
support of his argument, counsel has relied upon the following
decisions::
2005 (4) KCCR SN 288 – M/s Sage Enterprises Vs KIADB & Anr.
2006 (3) Kar.LJ 484 – Serendipity Apparels (P) Ltd., Bangalore Vs
19
KIADB, Bangalore
ILR 2007 KAR 1362 – M/s Electro Anil Ltd Vs State of Karnataka
& Ors
In the case of M/s Sage Enterprises, cited above, this Court
has observed, for non-utilisation of the land allotted and failure to
carry out construction activity in the plot within the time frame
prescribed and failure to perform the obligations under the lease, the
respondent is entitled to resume the land/plot and for breach of lease
conditions.
In the case of Serendipity Apparels, cited supra, it is held on
failure of the appellant to commence production and breach of
conditions, it cannot be said that respondent has committed any
illegality in cancellation of the allotment and that for shortage of
power or water, the respondent is not responsible.
20
In the case of Electro Anil Ltd., cited above, this Court has
held, referring to S.34 B of the KIADB Act, 2000 that, since there is
violation of conditions of allotment, after giving sufficient
opportunity to the petitioner, when the respondent authority has
determined the lease and proceeded to resume the land, the same
cannot be faulted with.
The bone of contention as per the appellant is, the land in
question has been utilized as per the specification of the authorities
and also the price has been fixed as per the lease-cum-sale
agreement and he has paid nearly Rs.8,31,517/-in excess of the
amount which is to be payable towards land cost and also the rental.
There is also no violation of the conditions and accordingly, counsel
has sought for a direction to the respondent authority to execute the
sale deed.
Per contra, it is argued, the actual extent of land in
21
occupation of the petitioner, as per the respondent, is 52,093 sq.mtrs.
Further according to the respondent, as per the project report at the
time of filing the application, plaintiff has agreed to utilize an extent
of 47,600 sq.mtrs annd it has utilized 1792.86 sq.mtrs as on
27.8.1994. This according to the respondent, is in violation of the
clauses of the agreement. Further, they have also not agreed to sell
the suit property for Rs.6,04,669/-. As per clause 7(b) of the
agreement, the suit property would be sold by the defendants and
price determined by the defendants would be indicated and the sum
of Rs.6,08,669/- is not the consideration.
In so far as utilization of the land in concerned, throughout
the case of the plaintiff is, since various authorities have posed
stringent conditions to leave sufficient set back having regard to the
nature of manufacturing activity involved, the same has been
complied with. According to them, the manufacturing activity of
steel alloy forging involves huge noise and production of high
22
decibles of sound on account of the hammer striking the forging and
it is necessary and mandatory that considerable vacant space be
maintained in and around the industrial shed if the manufacturing
activity takes place. As such, according to the plaintiff, he had
maintained the required vacant space.
It appears, all is not well with both the plaintiff and the
defendant. For non-utilization of the land, reasons assigned by the
respondent is, stipulation has been imposed by various authorities.
It is a matter of concern to be assertained in correspondence between
the plaintiff and defendants. Further, there appears to be some non-
compliance of the terms and conditions but, defendant is shown to
have not raised any objection regarding this. As per clause 7(b),
even as per the defendants themselves, price of the land would be
indicated at the time of completion of the lease period. However,
according to the plaintiff, it is a lease cum sale , they have paid
sufficient amount and it is for the defendants to execute the sale
23
deed.
Mere not raising objections at the relevant time regarding
non-compliance, though does not take away the right of the
defendant to exercise its right, plaintiff has also expressed its/his
difficult as to non-utilization of the land and various other aspects.
It appears certain explanation of the plaintiff ought to have
been considered by the defendant with regard to non-utilization of
the land as per specifications. Further, as regards the amount/cost of
the land is concerned, might be that it would be determined after the
lease period is over as such, it is kept open to be resolved between
the parties. While the order passed by the appellate court is set
aside, matter is remitted to the lower appellate court to find out the
possibility of any settlement between the parties; as to the right to
be determined for the purpose of enabling the plaintiff to purchase
the property on completion of the lease term; to see that if there
24
isany violation or breach of any terms and conditions, that could be
amicably settled ; the land in question has not been utilized for the
reaons assigned and if it is acceptable, the same could be accepted.
In the event, any price is quoted by the defendant as per clause 7(b)
and if the plaintiffs are agreeable, the same be considered to settle
the matter, according to law.
In that view of the matter, while answering the substantial
question of law accordingly, it is held that the lower appellate court
ought to have taken into consideration the above aspects in stead of
straight away dismissing the appeal confirming the order of the trial
court.
Appeal is allowed. Parties to bear their own costs.
Sd/- Judge
an
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