1

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

3

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.

4

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

5

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

6

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

7

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

11

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