State Action In Property Allocation Must Adhere To Fairness And Transparency Principles

CASE TITLE:

City Montessori School v. State of U.P. & Ors.

DATE OF ORDER:

02 August 2024

BENCH:

J. Abhay S. Oka

PARTIES:

Appellant: City Montessori School
Respondent/State: State of U.P. Ors.

SUBJECT

The judgement concerns a dispute between the City Montessori School and Shri M.M. Batra over the leasehold plot at Maha Nagar, Lucknow. The Supreme Court addressed issues regarding the cancellation of the school’s winning bid for the plot, the legality of converting the leasehold property to freehold in favor of the alleged lessee, and the adherence to fair and transparent procedures in state largesse. The Court upheld the High Court’s decision to annul the conversion order and the deed executed in favor of the alleged lessee, finding the conversion process flawed and the auction bid cancellation unjustified, while leaving open the questions of potential fresh auction and refund procedures.

LEGAL PROVISIONS

1. Article 14: It guarantees equality before the law. This principle also requires that all actions, including those related to allocation of state property, must be fair and transparent.
2. Section 109, Transfer of Property Act 1882: It provides that the rights of a lessee under a lease are transferable along with the leasehold property.
3. Section 11, General Clauses Act 1897: It addresses the manner of computing the time limits for legal and administrative actions.

BRIEF FACTS

1. On 29th July 1994, an auction was held by the state government for a Nazul property located in the city. Initially, the property was leased to a party (referred to as the alleged lessee) who sought to convert it to freehold ownership.
2. The tender documents for the auction were purchased by the school after the deadline specified in the auction notice thereby leading to a procedural violation.
3. The school’s bid was cancelled due to the late purchase of the tender documents. As a result, the highest bid was not accepted and the auction results were declared void. Instead, the second highest bid made by the sons of the alleged lessee was accepted.
4. On 17th February 1996 and 1st December 1998, government orders permitted the conversion of Nazul leasehold properties into freehold properties. Further, the alleged lessee’s lease was converted to freehold ownership at a nominal price significantly below the auction bid amount.
5. A writ Petition was filed by the school challenging the cancellation of its bid and the legality of the conversion order and deed executed in favor of the alleged lessee.
6. Disputes aroused over timing and procedural aspects of the amendment to the writ petition to include challenges to the conversion order.
7. The conversion order was found illegal and in violation of principles of fairness and transparency by the High Court. The High Court also addressed delays in challenging the conversion order but proceeded to review the substantive issues.

APPELLANT’S ARGUMENTS

1. The appellant argues that the cancellation of the highest bid was legally forbidden. The bid was accepted on the basis of the highest offer received, which should have been honored. The school purchased the tender document on the final day, which was a holiday. Despite this, the bid should not have been canceled solely on the basis of procedural ground. The state government’s decision to cancel the bid and accept a lower offer from the alleged lessee’s sons was arbitrary and unfair. The procedural lapse regarding the tender document should not nullify the highest bid accepted as per the auction terms.
2. The appellant further contends that the conversion of the plot from leasehold to freehold in favor of the alleged lessee was illegal. The conversion was granted at a nominal price of Rs. 67,022.21, which was significantly lower that the bid amount offered by the school 16 years prior. This conversion was not conducted transparently and fairly. The appellant argues that the state government’s decision to convert the plot to freehold and execute a deed in favor of the alleged lessee, despite the pending writ petition, was improper. The order of conversion and the resulting deed are deemed null and void due to their discrepancy with the prevailing policies and procedures.
3. It was also argued that the state government’s decision to grant a plot to the alleged lessee violates Supreme Court principles of fairness and equality, as mandated by Article 14 of the Constitution. The appellant also challenges the High Court’s decision to include the challenge to the conversion order and deed in the writ petition, stating that these challenges were crucial and directly affected the outcome.
4. The appellant further argues that restoring their original bid, accepted by the Special Nazul Officer, would uphold fairness and ensure the highest offer prevails in the auction, despite price increases.
5. The appellant seeks restoration of the original bid acceptance and argues that if the bid cannot be restored due to the passage of time, then the school should be entitled to a refund of the bid amount paid. They also seek clarity on the refund process for the amounts related to the conversion if applicable.

RESPONDENTS’ ARGUMENTS

1. The respondents argued that the school’s bid cancellation was lawful and justified, as the tender notice specified a deadline for purchasing the document to accept the second highest bid was in line with auction rules.
2. The respondents further contend that the conversion of the plot from leasehold to freehold in favor of the alleged lessee was conducted in accordance with the applicable government policies. The conversion was granted based on government orders dated 17th February 1996 and 1st December 1998, which allowed for the conversion of Nazul properties given on lease into freehold properties. The conversion was lawful and adhered to the established policies, which the alleged lessee was entitled to under these orders.
3. It was further argued that the school’s application to amend the writ petition to challenge the conversion order and deed was delayed. The alleged lessee conversion was granted in January 2002, but the challenge to this conversion was introduced much later. The delay in filing the amendment should be viewed as a procedural lapse, and any challenge to the conversion order at this last stage should be considered out of time.
4. The respondents maintain that the conversion of the leasehold to freehold was executed in accordance with the prevailing state policies at the time. The policy framework guiding the conversion was established by the government orders and the alleged lessee’s conversion was processed and completed according to these guidelines. There was no deviation from the prescribed policies, and the process followed was fair and consistent with the government’s established procedures.
5. The respondents further denied any allegations of collusion or bias in the acceptance of the alleged lessee’s bid or the conversion process. The auction was conducted transparently, and the highest bid was initially accepted in accordance with the terms. The subsequent decisions were based on legal and procedural grounds, and there was no preferential treatment or unfair advantage granted to the alleged lessee.
6. The respondents argue that the procedures for the auction and conversion were properly followed. The auction was conducted with adherence to the prescribed guidelines, and the conversion of the plot was in compliance with the government orders issued by the state government. Any claims of procedural irregularities or violations of principles of fairness are unsubstantiated, and the decisions made were within the legal and policy framework.
7. Respondents also argue that the alleged lessee has been in possession for years, complied with legal requirements, and a conversion order would be unjust and contrary to established policies.

COURT’S ANALYSIS

1. The Court found that the cancellation of the school’s bid was lawful, as the school had purchased the tender document after the deadline specified in the auction notice. The decision to accept the second highest bid from the alleged lessee’s sons was consistent with the auction rules.
2. The Court analyzed the conversion of the plot from leasehold to freehold. It noted that the conversion order was issued at a nominal fee, significantly lower than the bid amount offered by the school years earlier. This raised concerns about the fairness and transparency of the process, suggesting that the conversion may have been conducted improperly.
3. The Court observed that despite disputes about whether the amendment was formally allowed, the challenge to the conversion order was acknowledged and considered. It concluded that the school’s belated attempt to amend the petition did not invalidate the substantive challenge to the conversion.
4. The Court found that while the alleged lessee’s conversion was purportedly in line with government policies, the process of conviction at a significantly reduced rate was problematic. The Court held that the conversion order lacked transparency and did not meet the standards of fairness required under Article 14 of the Constitution.
5. The Court noted that the plot’s auction and conversion processes were marred by procedural issues and a lack of adherence of fair practices. The Court deemed that restoring the school’s bid would be unjust due to the significant passage of time and changes in property values.

JUDGEMENT

The Court upheld the High Court’s decision to nullify the conversion order but left open questions regarding the plot’s future disposition. It emphasized that any further action should comply with current policies and legal standards, and both the school and the alleged lessee may seek refunds for amounts paid.

CONCLUSION

The Supreme Court upheld the High Court’s decision to invalidate the conversion of the leasehold plot to freehold in favor of the alleged lessee. The court found that the conversion process was neither fair nor transparent, violating principle of state largesse. The cancellation of the highest bid by the City Montessori School and the subsequent conversion of the plot at a nominal price were deemed illegal. While the court dismissed both parties’ appeals, it left questions regarding the plot’s future and potential new auction. The State Government was directed to handle refund requests promptly, ensuring fairness in the resolution of the dispute.