A) ABSTRACT / HEADNOTE

The appeal arises from sale of a Nazul plot originally subject to an agreement to lease executed by the Delhi Improvement Trust (now Delhi Development Authority) dated 17 July 1957 in favour of M/s Mehta Constructions & Industrial Corporation Pvt. Ltd. The lease contemplated later execution and registration of a lease deed; clause 24 expressly provided that until execution/registration the agreement would not create any right, title or interest.

M/s Mehta Constructions purportedly transferred its position to M/s Pure Drinks (New Delhi) Ltd. by a registered conveyance cum assignment dated 15 February 1985 (registered after an order of the Company Court). M/s Pure Drinks went into liquidation and the plot was auctioned in liquidation; the highest bidder (S.G.G. Towers (P) Ltd.) had the auction sale confirmed by the Company Judge and later by the Division Bench of the High Court.

The DDA challenged confirmation on the ground that no leasehold rights ever vested in Mehta (and hence could not be transferred or sold) and that transfer required DDA’s prior consent under Section 22 of the Delhi Development Act, 1957 and the Delhi Development Authority (Disposal of Developed Nazul Land) Rules, 1981 (Rule 43). The Supreme Court held that because the lease deed was never executed the original agreement conferred no proprietary interest on Mehta; accordingly the transferee in liquidation could only acquire those rights, if any, which Mehta could lawfully confer  but that did not amount to ownership or a valid executed lease.

The auction was on “as it is basis” and the Company Judge’s order made sale absolute; therefore the successful bidder acquired only such rights as flowed from Mehta’s position and no greater. The Court declined to order appropriation of liquidation moneys for unearned income in favour of DDA given multiple creditors and ongoing liquidation.

The DDA’s remedy to recover possession or unearned income remains available and the buyer may apply to regularise the transaction by tendering unearned income or other sums in accordance with law.

Keywords: Agreement to Lease; Leasehold Rights; Nazul Land; As-is Auction; Unearned Income.

B) CASE DETAILS 

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The dispute centres on the legal consequence of an agreement to lease in the context of Nazul land administered by a statutory authority. The DDA executed an agreement to lease in 1957 in favour of M/s Mehta Constructions but the formal lease deed was never executed or registered because certain conditions precedent remained unfulfilled. Decades later Mehta purportedly transferred its position to M/s Pure Drinks by way of an agreement for sale (1972) and a registered sale/assignment (1985), the latter being presented for registration pursuant to an order of the Company Court.

When M/s Pure Drinks became insolvent its assets (including the Mehta transaction interest) were sold by public auction in liquidation; S.G.G. Towers purchased at auction and had confirmation of sale by the Company Judge and the Division Bench. DDA contended that a Nazul lease cannot be transferred except with statutory procedure and prior consent; absent an executed lease Mehta had no transferable proprietary interest and the liquidation auction could not convey title.

The High Court’s confirmation and the Company Court’s actions required the Supreme Court to reconcile administrative/statutory restrictions on Nazul disposals, the effect of clause 24 in the 1957 agreement, the legal nature of ‘rights’ sold in liquidation (particularly where auction notices declared sale on “as it is basis”), and distribution of liquidation proceeds where multiple creditors existed.

The Court engaged precedent concerning DDA’s control over Nazul land and principles governing transferability of leasehold expectations, while preserving remedies for the Authority to recover unearned income or possession if breach could be established.

D) FACTS OF THE CASE

The Delhi Improvement Trust (now DDA) executed an agreement to lease dated 17 July 1957 in respect of plot no.3 (2,044.4 sq. yards) in the Najafgarh Road industrial area in favour of M/s Mehta Constructions. The agreement required specified compliances before a lease deed could be executed; Clause 24 expressly stated that until execution and registration of the lease deed the agreement would not operate as a legal demise or create any right, title or interest.

On 25 November 1972 Mehta entered into an agreement for sale in favour of M/s Pure Drinks and on 15 February 1985 executed a registered sale deed cum assignment allegedly transferring its position. The Company Court had directed the High Court Registrar to present the deed for registration on 4 February 1985. M/s Pure Drinks later went into liquidation; the High Court issued a notice of proclamation of sale on 9 June 2000 and an auction was conducted on 24 August 2000, where S.G.G. Towers was the highest bidder.

The Company Judge by order dated 19 October 2001 made sale absolute and later confirmed the auction; the Division Bench dismissed DDA’s challenge on 21 January 2010. DDA maintained it never created leasehold rights (because lease deed never executed) and that any transfer required prior consent under Rule 43 of the 1981 Rules and Section 22 of the Act. Auction notices recorded sale on “as it is basis”. Moneys deposited by buyer were invested in fixed deposits; liquidation showed multiple creditor claims far exceeding available funds.

E) LEGAL ISSUES RAISED

1. Whether an agreement to lease that envisages subsequent execution/registration of lease deed and contains Clause 24 creates any transferable right, title or interest capable of being sold in liquidation?

2. Whether transfer/registration effected by Mehta in favour of a private transferee (and subsequent auction in liquidation) can confer ownership or full leasehold rights in respect of Nazul land without prior consent of DDA under Section 22 and the 1981 Rules?

3. Whether proceeds/deposits from auction in liquidation can be appropriated to satisfy unearned income or similar dues claimed by the DDA when multiple creditors exist?

4. What remedies remain open to the DDA and what relief, if any, is available to the purchaser to regularise the transaction?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for Petitioner / Appellant submitted that the 1957 instrument was only an agreement to lease and expressly barred any right, title or interest until a lease deed was executed and registered under Clause 24; therefore Mehta never acquired any proprietary interest to transfer. The plot being Nazul land vested with the Union and administered by the DDA, its disposal is governed by Section 22 of the Delhi Development Act, 1957 and the Delhi Development Authority (Disposal of Developed Nazul Land) Rules, 1981, which require lessor’s prior consent for transfer (Rule 43).

The Company Court was not informed of the absence of leasehold rights when authorising registration; the auction confirmation was therefore incorrect and contrary to precedent (citing Delhi Development Authority v. Vijaya C. Gurshaney and subsequent authorities) and the sale was illegal.

G) RESPONDENT’S ARGUMENTS

The counsels for Respondent submitted that the DDA had not earlier challenged the transactions between Mehta and Pure Drinks nor the auction process and had participated in proceedings; the Company Court had ordered registration and the purchaser’s auction rights were confirmed by the High Court. The sale was conducted under judicial orders and on “as it is basis”; the buyer acquired whatever rights Mehta had. Given ongoing liquidation and multiple creditors, it was impermissible to appropriate auction moneys for unearned income at the DDA’s behest without Company Court directions.

H) JUDGEMENT

The Court found as a factual and legal proposition that the lease in terms of the 1957 agreement was never executed and hence Mehta never acquired proprietary leasehold rights. Clause 24 was decisive: until execution and registration the agreement did not operate as a demise or create any right, title or interest. The registered conveyance of 15 February 1985 therefore could at best transfer such expectancy or contractual position as Mehta possessed, but not transform it into ownership or a valid registered lease enforceable against DDA.

The auction in liquidation was held on “as it is basis” and the Company Judge’s order making sale absolute recorded that the purchaser acquired whatever lessee rights were acquired either by Mehta or by Pure Drinks. The Court therefore upheld the Division Bench’s view that the auction did not amount to transfer of absolute ownership or perfected leasehold against the DDA.

a. RATIO DECIDENDI

The operative legal ratio is that an agreement to lease containing an express condition (here Clause 24) that no rights shall arise until a lease deed is executed and registered precludes creation of transferable proprietary rights absent fulfilment of those conditions. Where the lessor is a statutory custodian of Nazul land, statutory rules (notably Section 22 and Rule 43 of the 1981 Rules) require compliance and consent for transfer; failure to satisfy these requirements means the purported transferee cannot claim ownership or a registered lease.

In liquidation, an auction conducted on “as it is basis” conveys only such rights as the insolvent company legitimately possessed. The presence of judicial confirmation of auction does not enlarge the purchaser’s rights beyond the vendor’s legal capacity to transfer. Consequently, the purchaser cannot claim to be a lessee or owner where the original lessor never executed a lease.

b. OBITER DICTA 

The Court observed (obiter) that remedies remain open to the DDA if it can establish breach by Mehta including proceedings for recovery of possession and recovery of unearned income against the purchaser, subject to appropriate legal processes. The Court noted the practical complication that liquidation proceeds are encumbered by multiple creditor claims; hence the Court would not direct appropriation of deposited funds for the DDA without Company Court determination.

The Court also suggested that if the purchaser wishes to regularise its title it may apply to the DDA to accept unearned income or other sums; the DDA would consider such applications in accordance with law. These observations underline equitable and procedural pathways short of declaring the auction void.

c. GUIDELINES

1. Where a lease agreement contains a condition precedent that the lease deed must be executed and registered before any interest vests, courts will treat the vendor’s rights as limited to contractual expectancies until conditions are fulfilled.

2. Auctions in liquidation described as “as it is basis” convey only vendor’s existing legal rights; purchasers take subject to statutory limitations attaching to the vendor’s capacity.

3. For Nazul land, transfers/regularisation must comply with Section 22 of the Delhi Development Act, 1957 and the DDA (Disposal of Developed Nazul Land) Rules, 1981; prior consent under Rule 43 is material.

4. Where auction proceeds are in liquidation coffers and multiple claims exist, courts should not direct appropriation for a particular administrative claim without Company Court adjudication of priorities.

5. Administrative authority (DDA) retains ordinary remedies (recovery of possession, claim for unearned income) and may consider applications to regularise irregular transfers on payment of dues in accordance with law.

I) CONCLUSION & COMMENTS

The decision strikes a balanced path: it recognises the protective purpose of Clause 24 and statutory controls over Nazul land while respecting the mechanics of judicial liquidation sales conducted on as-is terms. Practically, the judgment clarifies that judicial confirmation of an auction cannot transmute a purchaser’s title beyond what the vendor could lawfully pass. The DDA’s corporate and statutory safeguards remain enforceable; the authority is not precluded from pursuing remedies for breach or unearned income, but practical constraints in liquidation (multiple creditors, limited funds) may delay or limit recovery.

The ruling also sensibly opens a route for purchasers to regularise transactions by paying unearned income or other sums, preserving commercial settlements where legally permissible. For practitioners, the case reiterates the critical importance of verifying the precise nature of pre-existing rights before acquisition in insolvency sales, and the need for administrative consents where public/Nazul land is concerned.

J) REFERENCES

a. Important Cases Referred

1. Delhi Development Authority v. Vijaya C. Gurshaney & Anr., (2003) 7 SCC 301.

2. Food Corporation of India & Ors. v. Babulal Agrawal, (2004) 2 SCC 712.

3. Delhi Development Authority v. Anant Raj Agencies Pvt. Ltd., (2016) 11 SCC 406.

4. State of Rajasthan & Ors. v. Gotan Lime Stone Khanij Udyog Pvt. Ltd. & Anr., (2016) 4 SCC 469.

5. Delhi Development Authority v. Nalwa Sons Investment Ltd. & Anr., (2020) 17 SCC 782.

6. Delhi Development Authority v. S.G.G. Towers (P) Ltd. & Ors., [2025] 3 S.C.R. 779 : 2025 INSC 337.

b. Important Statutes Referred

1. Delhi Development Act, 1957 (esp. Section 22).

2. Delhi Development Authority (Disposal of Developed Nazul Land) Rules, 1981 (esp. Rule 43).