Amalgamation Under Company Court Order Amounts to ‘Transfer’ Under Lease Clauses: Supreme Court Upholds DDA’s Demand for Unearned Increase

07 May 2024 8:19 AM

By: Admin


The Supreme Court has held that the amalgamation of companies, sanctioned under a Company Court order, constitutes a ‘transfer’ within the terms of perpetual lease agreements, thus obligating the payment of an unearned increase in value to the lessor.

Facts and Issues: M/s. Jaiprakash Associates Ltd., originally M/s. Jaiprakash Associates Pvt Ltd, amalgamated with M/s. Jaypee Rewa Cement Ltd, transferring several perpetual lease plots to the newly formed entity. The Delhi Development Authority (DDA), acting as lessor, demanded payment for the unearned increase in value of these plots, asserting that the amalgamation amounted to a transfer as per the lease deeds. The appellant contested this, leading to the present appeal.

Lease Deeds’ Interpretation: Clause II(4)(a) of the lease deeds expressly prohibits the lessee from transferring the lease plots without the lessor’s prior written consent. The Court found this clause applicable, stating that it “covers all categories of transfers” and does not exempt involuntary transfers.

Scope of Transfer Under Lease Deeds vs. TPA: The Court opined that the transfer defined in the lease clauses is broader than that under Section 5 of the Transfer of Property Act (TPA). It includes parting with possession, thereby encompassing the transfer occurring due to amalgamation.

Precedent and Policy Reference: The judgment referred to similar past decisions like Nalwa Sons Investment Ltd. And Indian Shaving Products Limited, aligning with the principle that transfers due to corporate restructuring, like amalgamation or demerger, attract clauses of lease deeds regarding unearned increase payments.

Scheme of Amalgamation – Legal Effect: The Court noted that the scheme of amalgamation led to a transfer of properties from the transferor to the transferee company. This transfer, sanctioned by the Company Court, brought the situation squarely within the ambit of clause II(4)(a) of the lease deeds.

Decision: The appeal was dismissed. The Court upheld the DDA’s demand for the unearned increase, confirming that the amalgamation constituted a ‘transfer’ under the perpetual lease agreement. The appellant is required to comply with the interim order regarding the payment of the specified amount.

Date of Decision: 5th April 2024

M/s. Jaiprakash Industries Ltd. (Presently known as M/s. Jaiprakash Associates Ltd.) versus Delhi Development Authority

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