M/S Panacea Biotec Ltd. vs Delhi Development Authority & ...
2008 Latest Caselaw 1233 Del

*                 HIGH COURT OF DELHI AT NEW DELHI

+                     LPA No.283/2008


M/s Panacea Biotec Ltd.                    .....Appellant
                           Through: Mr.Ravinder Sethi, Sr. Adv.
                                    with Mr.Kawal Nain,
                                    Mr.Manish Goel and Mr.P.N.
                                    Chandan, Advocates

                           Versus


Delhi Development Authority & Anr.       ...Respondents
                         Through: Mr.Ajay Verma, Advocate

CORAM:

HON'BLE THE CHIEF JUSTICE
HON'BLE DR. JUSTICE S.MURALIDHAR

1.Whether reporters of the local news papers
  be allowed to see the judgment?n
2.To be referred to the Reporter or not ?n
3. Whether the judgment should be reported in the Digest ?n

                             ORDER

%                            5.8.2008

1.     Admit.

2. With the consent of the counsel appearing for the parties

the appeal is taken up for hearing.

3. This appeal is preferred by the original writ petitioner

against the judgment and order dated 23rd April, 2008 passed by

LPA No.283/2008 page 1 of 13 the learned single Judge in WP(C) No.9937/2005 whereby the

learned single Judge was pleased to allow the writ petition of the

appellant to the extent that the impugned order dated 19th

October, 2000 cancelling the sub-lease deed was quashed. The

grievance of the appellant is that the learned single Judge having

held in favour of the appellant on all counts instead of directing

the DDA to convert the leasehold rights into free hold rights in

terms of the judgment of this Court in J.K. Bhartiya and others

v. Union of India and another {2006 (1) AD (Delhi) 408}

further granted liberty to the DDA to issue a fresh show cause

notice to the appellant despite the fact that all the formalities for

the conversion including the deposit of conversion charges have

been complied with by the appellant.

4. The brief factual matrix is as follows:

The appellant is a member of the Mohan Cooperative

Industrial Estate, New Delhi and is holding an industrial plot

bearing No.B-1 Extension, A-27, Mohan Cooperative Industrial

Estate, New Delhi. The plot was originally allotted to one Mr.Ram

Prakash under a perpetual sub-lease deed dated 17th April, 1978.

The appellant, which is a company incorporated under the

LPA No.283/2008 page 2 of 13 Companies Act, 1956, is a subsequent purchaser who bought the

property in July, 1995. The premises were thereafter and is since

being used predominantly for the purposes of computer software

and programming / IT enabled services and other similar

activities. The appellant applied to the Municipal Corporation of

Delhi and was granted an industrial licence for the purposes of

computer and software programming, which is being renewed

from time to time. In 2003, the DDA floated a scheme for

conversion of the industrial property from leasehold rights to

freehold rights on payment of conversion charges. Under the

scheme an option is given to the subsequent purchaser to have

the property converted from leasehold rights to freehold rights

thereby recognising and regularising the sale pertaining to the

said purchase. The DDA under the said scheme levied a

surcharge of 33.33% over and above the conversion charges

applicable in cases of purchases / sales from the original sub

lessee, while allowed concession / discount of 40% in case of an

original allottee.

On 23rd March, 2004, the appellant applied for conversion of

the leasehold rights to freehold rights with regard to the industrial

LPA No.283/2008 page 3 of 13 premises in question and deposited a sum of Rs.21 lacs towards

the conversion charges, which were inclusive of the surcharge of

33.33%. It is the case of the appellant that the officials of the

DDA declined to process application of the appellant on the

ground that the sub-lease deed of the premises in question

already stood terminated. This is how the appellant for the first

time came to know about the impugned cancellation order / letter

dated 19th October, 2000 during the last week of April, 2004. The

appellant, therefore, filed the present writ petition, which came to

be disposed of by the order under appeal.

5. At the outset we may mention that the question relating to

transfer of the plot without permission of DDA and contrary to the

terms of the sub-lease does not survive in view of the conversion

scheme launched by DDA in 2003, under which leasehold rights

in a property can be converted into freehold rights on payment of

conversion charges and penalty. In J.K. Bhartiya and others v.

Union of India and another (supra) it has been held by this

Court that conversion is permitted even in the case of re-entered

properties on the ground that there was transfer of property

without prior permission and contrary to the sub-lease.

LPA No.283/2008 page 4 of 13

6. The main issue, which fell for consideration of the learned

single Judge was whether there was violation of Clause II Sub-

Clause 14 of the sub-lease deed. Sub-Clause 5 of Clause II of sub-

lease deed provides that the sub-lessee shall construct an

industrial building for carrying on approved manufacturing

process or industry. The impugned order dated 19th October,

2000 refers to the show cause notices dated 17th November,

1997, 15th July, 1998 and 20th May, 1999. It is the case of the

appellant that these show cause notices were never served. An

averment in this regard has been specifically made in the writ

petition. In the counter affidavit filed by the respondent, it is

stated that the aforesaid show cause notices were issued and

were also served through the Process Server. Service report of

the Process Server has not been enclosed and filed with the

counter affidavit nor the service report was produced in the

Court. Consequently, the learned single Judge rightly came to the

conclusion that the show cause notices were never served.

7. Coming then to the alleged violation of Sub-Clause 14 of

Clause II of the sub-lease deed, it is an admitted position that the

industrial premises in question are used for the purposes of

LPA No.283/2008 page 5 of 13 production of computer software, programming and for providing

Information Technology enabled services and only part of the

premises is being used for storage / godown and for office

purposes. Consequent upon an order of this Court dated 5th

March, 2007, a joint inspection was carried out on 26 th March,

2007. A joint inspection report is filed as per which basement

was found to be used for storage, ground floor was found to be

used for software programme (computers installed) and the first

and the second floors were found to be used for office purposes

with computers installed on the first floor. An industrial licence

was also produced. The inspection report states that the nature

of trade carried out by the occupier was computer installed

software programming.

8. There is no discussion or reasoning and the order

communicating the termination of the sub-lease deed is cryptic

and a non-speaking order. The respondent DDA, however, took a

stand that software development and Information Technology

enabled services cannot be categorised as a "manufacturing

process" or "industry". It was urged that in view of the admitted

fact that the property was/is being used for software

LPA No.283/2008 page 6 of 13 development, termination of the sub-lease deed is justified. This

contention was expressly rejected by the learned single Judge.

The relevant portion of the impugned judgment is reproduced

below:

"16. The contention raised by the respondent is that software development and Information Technology cannot be regarded as manufacturing process or industry. It is not possible to accept the said contention. The Black's Law Dictionary defines "Industry" as "Any department or branch of art, occupation or business conducted as a means of livelihood or for profit: especially one which employs much labour and capital and is a distinct branch of trade." Industry can be defined as the habitual activity, either bodily or mental, to manufacture by way of processing, assembling and creating goods or saleable commodity. Software development is done with the aid and help of manpower. It results in creation of a product which may be intangible initially but when is transferred to floppies, CD roms, punch card, magnetic tapes, etc, it becomes a marketable commodity or goods. It is saleable and has value even in it's intangible form. Sub- Clause 14 of the Sub-lease deed has to be interpreted in a reasonable manner and with sufficient flexibility and should not be given a very strict interpretation as to prevent the Sub-

lessee from using the property in a manner he wants. Computer software is a marketable product and are 'goods' under Article 366(12) of the Constitution of India as held in Tata Consultancy Services v. State of Andhra Pradesh reported in (2005) 1 SCC 308. Use of intellectual rights and resources which are

LPA No.283/2008 page 7 of 13 otherwise intangible to produce a product can be regarded as a manufacturing process/activity for the purpose of Sub-Clause

14. Sub-Clause 14 of the Sub-lease deed draws a distinction between a property used for "running of industry" or "carrying on manufacturing process" and a property being used for "carrying on trade or business". Development of software is not equivalent to carrying on trade or business. Trading involves sale and purchase of commodities and excludes development or manufacturing process which results in creation of a new product. The term "business" is very wide, and almost synonymous with the term "trade", but as used in Sub-Clause 14 it has to be given a restrictive meaning. It has been used as contra to the expressions "carrying on manufacturing process or running of an industry".

17. ..... ..... ..... ..... ..... ..... ..... .....

18. A reading of the said Clause indicates that under the new Master Plan of Delhi 2021, a limited type of new industries have been permitted and these include computer hardware and software industries which are regarded as hi-tech areas. Contention of DDA in their affidavit dated 26th September, 2007 that under the Master Plan of Delhi 2001 computer software was not considered as an industry and was not permissible in industrial premises and under the Master Plan of Delhi 2021, computer software is permissible only in new industrial areas and is to be restricted to hi-tech areas, is to be rejected. It cannot be said that Master Plan of Delhi 2001 did not consider development of computer software to be an industry or involving manufacturing process. Further interpretation given to Clause 7.7 of

LPA No.283/2008 page 8 of 13 Master Plan of Delhi 2021 by DDA is incorrect. The said Clause stipulates that new industrial activity in Delhi would be restricted to hi-tech areas like computer software industry and also industries involving system integration using computer hardware and software. The term "hi- tech area" is used for the purpose of referring to the nature of industry rather than expanding the scope of the terms industry or manufacturing process by deeming fiction. Certain other industries are also mentioned.

19. The lease deed in question is a statutory document prescribed under the Nazul Rules. Nevertheless while interpreting its clauses, one has to keep in mind that the lease is for a term of 99 years and therefore the clauses have to be interpreted considering changes and development that take place over a period of time and construction of the words used in the Sub-lease deed has to be alive and one which takes into account relevant changes that take place with new technology and need and requirement of the society. The lease deed has to be read in a dynamic manner and the expressions used have to be understood by updating construction and meaning to be assigned to the expressions used lest they become totally outdated and ill-tuned with the ground reality. The words have to be interpreted in accordance with the current understanding and not in a theoretical manner. If reality requires adjustment and liberal interpretation of expressions used in the Sub- lease deed, they should be interpreted liberally. [On the question of updating construction of words used in the statute, see observations of the Supreme Court in Commissioner of Income Tax v. Podar Cement reported in (1997) 5 SCC 482].

LPA No.283/2008 page 9 of 13

20. Though Clause 7.7 of the Master Plan of Delhi 2021 has not been specifically given retrospective or retroactive effect, the aforesaid clause reflects the legislative intent that development of software was always treated as an industry or a manufacturing process. Clause 7.7 of the Master Plan of Delhi 2021 is explanatory in nature and has clarified doubt or ambiguity (if any) in what was implicit earlier. It cannot be said that the intention behind Clause 7.7 of the new Master Plan of Delhi 2021 is to expand the meaning of the term "manufacturing process" or "industry", when it stipulates that computer hardware and software development is an industry..........."

9. Mr.Ravinder Sethi, Sr. Advocate appearing for the

appellant, contended and in our opinion not without sufficient

force that even as per the policy of the respondent DDA itself in

such cases where cancellation of the lease deed has been

effected, the leases are restored and the property is converted to

freehold. He submitted that the learned single Judge has

committed an error in granting liberty to the respondent DDA to

issue a fresh show cause notice inasmuch as all the points arising

in the present matter have already been decided under the

impugned order itself in favour of the appellant. Learned counsel

submitted that the appellant has already suffered for years

running from pillar to post in different offices of the DDA and in

LPA No.283/2008 page 10 of 13 case the DDA is allowed to issue a fresh show cause notice, the

appellant will have to face a trauma and harassment at the hands

of the DDA and this will result in unnecessary multiplicity of

proceedings. The counsel appearing for the DDA, on the other

hand, submitted that there is no ground to interfere with the

direction of the learned single Judge for issuance of a fresh show

cause notice and the appellant is free to agitate all issues before

the DDA.

10. Having considered the submissions of both sides, in our

view the order of the learned single Judge to the extent it

permitted the respondent DDA to issue a fresh show cause notice

is clearly unsustainable in law. The show cause notice was issued

on two grounds. The first ground was that the property was sold

without the permission of the DDA. It is noted by us that in terms

of the conversion policy of the DDA even a power of attorney

holder having in possession of the property can apply for

conversion subject to the payment of additional surcharge of

33.33%, irrespective of the fact, whether permission was taken or

not. In J.K. Bhartiya and others v. Union of India and

another (supra) this Court has categorically held that conversion

LPA No.283/2008 page 11 of 13 is permissible even in the case of re-entered properties on the

ground that there was transfer of property without prior

permission and contrary to the sub-lease.

11. The second ground was that that the appellant had

misused the premises by undertaking the work of software

development, which is contrary to the provisions of the sub-lease

deed. On this issue, the learned single Judge has categorically

held that the work of software development is covered by the

phrase "manufacturing process" and "industry" etc. and there

was no violation of sub-lease deed. Under the circumstances,

there was no occasion for the learned single Judge to grant liberty

to the respondent DDA to issue a fresh show cause notice

pointing out irregularities. In our opinion, once the impugned

order dated 19th October, 2000 is quashed, the appellant is

clearly entitled to conversion of the property from leasehold to

freehold.

12. In the result, the appeal succeeds. The impugned

direction of the learned single Judge granting liberty to the

respondent DDA to issue a fresh show cause notice is set aside

and DDA is directed to process the application of the appellant for

LPA No.283/2008 page 12 of 13 conversion in accordance with law and grant freehold rights

subject to the compliance with conditions including payment of

conversion charges.

CHIEF JUSTICE

S.MURALIDHAR, J August 05, 2008 "nm"

LPA No.283/2008                                     page 13 of 13