Delhi High Court
Ajai Chowdhry vs Delhi Development Authority on 21 April, 2026
$~J-
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on: 24.03.2026
Judgment Delivered on: 21.04.2026
+ W.P.(C) 7998/2023, CM APPL. Nos. 30768/2023, 34555/2023 and
61475/2023
AJAI CHOWDHRY .....Petitioner
Through: Mr. Chander Uday Singh, Sr.
Advocate with Mr. Vivek Singh, Ms. Kirti
Mewar and Mr. Ajay Lulla, Advocates.
versus
DELHI DEVELOPMENT AUTHORITY .....Respondent
Through: Ms. Kritika Gupta and Ms.
Vidushi Singhania, Advocates.
CORAM:
HON'BLE MR. JUSTICE VIKAS MAHAJAN
JUDGMENT
VIKAS MAHAJAN, J
1. The case set out by the petitioner in the instant petition is that vide a
Perpetual Lease Deed dated 06.04.1978, the President of India leased rights
of Plot No. 10, ad measuring 598 square yards, situated at Ishwar Nagar,
New Delhi (hereinafter referred to as ‘the subject property’), in favour of
Ishwar Nagar Co-operative Group Housing Society Ltd.
2. Subsequently, vide a registered Perpetual Sub-Lease Deed dated
16.08.1979, the President of India, in conjunction with Ishwar Nagar Co-
operative Group Housing Society Ltd., perpetually sub-leased the subject
property in favour of Mr. Vidur Bhaskar and Mrs. Chiterlekha Bhaskar.
Thereafter, Mr. Vidur Bhaskar and Mrs. Chiterlekha Bhaskar, vide an
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Agreement to Sell dated 09.10.1991, agreed to sell the said property to Mr.
Joy Paul Vadakkel for a total sale consideration of Rs. 70,00,000/-.
3. In furtherance of the aforesaid agreement to sell, Mr. Vidur Bhaskar
applied to the Income Tax Department (hereinafter ‘the department’) for
permission to complete the aforesaid transaction by filing the requisite form.
However, the department, exercising its powers under Section 269UD(1) of
the Income Tax Act, 1961, declined to grant permission and ordered
purchase of the said property by the Central Government for the same
consideration of Rs. 70,00,000/-. Pursuant thereto, the Central Government
paid the entire sale consideration to Mr. Vidur Bhaskar and acquired the said
property.
4. Thereafter, the department auctioned the said property on 17.09.1993,
in which the petitioner emerged as the highest bidder with a bid of
Rs.1,12,90,000/-, which was duly accepted by the competent authority.
Following this, and pursuant to the Supplementary Terms and Conditions of
the auction sale deed, the respondent levied a demand of unearned increase
and composition fee amounting to Rs.23,79,106/- upon the petitioner.
5. Subsequently, the President of India, acting through the Central Board
of Direct Taxes, executed a Sale Deed dated 05.04.1994 in favour of the
petitioner with respect to the subject property. The petitioner has remained
in continuous possession of the said property ever since.
6. On 18.02.2022, the petitioner approached the respondent/DDA by
submitting an online application on the respondent’s e-portal, seeking
conversion of the said property from leasehold to freehold.
7. The respondent’s failure to process petitioner’s leasehold-to-freehold
conversion application within the prescribed two-month period and after
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eight months of inaction, the petitioner escalated the matter through a formal
letter to the Lt. Governor on 06.10.2022, and a personal meeting with the
Vice Chairman the following day. Despite these efforts, the
respondent/DDA remained silent until 06.12.2022, when it issued a demand
on its e-Portal for a staggering sum of Rs. 8,94,98,546/- towards ‘unearned
increase’. This demand was coupled with a notice that the conversion
application would be summarily rejected unless this amount was paid in a
time-bound manner, effectively conditioning the conversion on the
settlement of these disputed charges.
8. In response, the petitioner submitted a detailed representation on
27.12.2022, challenging the legality and calculation of the demand. The
respondent has reportedly failed to provide a rational breakup of the nearly
Rs. 9 crores demand or address the merits of the petitioner’s legal
objections.
9. The petitioner continued to exhaust administrative remedies
throughout the first half of 2023, filing multiple representations on
26.04.2023, addressed to the Directors of the Land Costing and Land
Disposal Wings. These efforts included a personal meeting and a follow-up
letter dated 27.04.2023, to the Member (Finance), specifically contesting the
calculation of the ‘unearned increase’ in light of the 1993 auction terms.
10. Despite these persistent inquiries and the use of the RTI mechanism to
gain transparency, the petitioner’s requests for a mathematical breakup or a
substantive review of the nearly Rs. 9 crores demand have remained
unaddressed by the Respondent.
11. Sequel to above, the petitioner filed an RTI application on
27.12.2022, seeking information regarding the breakup and details of the
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alleged demand raised by the respondent. As per the reply dated 03.01.2023,
the said RTI application was referred to the Accounts Branch of the
Respondent and thereafter to the Management Wing. However, the status of
the RTI application is reflected as ‘disposed of’.
12. In the aforesaid factual backdrop, the present petition has been filed
seeking the following relief:
“A. Issue a writ in the nature of certiorari quashing the demand
dated 06.10.2022 raised by the Respondent to the tune of Rs.
8,94,98,546/- (Rupees Eight Crores Ninety-Four Lakhs Ninety-
Eight Thousand Five Hundred and Forty Six Only) from the
Petitioner on account of unearned increase.
B. Issue a writ in nature of mandamus or any other appropriate
writ directing the Respondent to grant conversion of the
property of the Petitioner into freehold;”
13. Mr. Chander Uday Singh, learned Senior Counsel appearing on behalf
of the petitioner, at the outset submits that the impugned demand raised by
the respondent is, in any event, hopelessly barred by limitation. From
05.04.1994, when the said property was conveyed to the petitioner by a duly
registered Sale Deed, until the year 2022, the respondent never raised any
demand whatsoever on account of unearned increase.
14. He submits that for nearly three decades, the respondent consistently
accepted ground rent, permitted construction on the property, issued
completion certificates, allowed mutation, and otherwise acquiesced in the
petitioner’s peaceful, open, and uninterrupted enjoyment of the property. A
stale and dead claim cannot be revived merely because the petitioner
subsequently applied for conversion of the property from leasehold to
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freehold. The respondent, being a statutory authority cannot claim the
benefit of any extended period of limitation and is squarely governed by the
provisions of the Limitation Act, 1963.
15. He further submits that the very concept of ‘unearned increase’ has
been fundamentally misconstrued and misapplied by the respondent.
Unearned increase is attracted only in cases where a lessee proposes to
transfer or sell leasehold rights and earns a windfall or profit arising from
appreciation in land value, thereby entitling the lessor to a stipulated share.
In the present case, however, the petitioner has neither sold nor
contemplated any transfer of the property. Rather, the petitioner has merely
sought the conversion of the said property from leasehold to freehold status
which is a procedural transition.
16. He submits that the petitioner had purchased the property directly
from the Government through a public auction conducted by the Income Tax
Department wherein he had paid the full market value, after the Central
Government had acquired the said property under statutory powers. Once
the Government itself sells a property at prevailing market value, there can
be no occasion to levy unearned increase upon the auction purchaser.
17. He further emphasizes the fact that the sale in petitioner’s favour did
not require any prior permission from the respondent as the unearned
increase under the lease conditions is leviable only as a condition precedent
for granting permission to transfer leasehold rights. Where no such
permission is required, the very foundation for levying unearned increase
disappears. The respondent cannot retrospectively resurrect a condition that
was never triggered.
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18. To buttress his contentions, he draws attention of the Court to the
letter dated 29.09.1993, addressed to the respondent, whereby it was
mentioned by the petitioner that as per the Supplementary Terms and
Conditions of the Auction, a sum of Rs. 23,79,106/- towards unearned
increase and composition fee had been levied upon the petitioner. Despite
such prompt and bona fide intimation, the respondent neither raised any
formal demand nor informed the petitioner of any procedure or compliance
required on his part.
19. He vehemently assails the mathematical calculations placed on record
by the respondent, submitting that they are based entirely on the
respondent’s own whims and fancies without any statutory backing. The
respondent has failed to offer any rational explanation as to how an initial
demand of Rs. 23,24,880/- pertaining to the first sale in the year 1992 has
been inflated to Rs. 3,41,03,562.98/-. He submits that this 1992 demand is
hopelessly barred by time; it cannot be resurrected as an inflated claim
today, nor can any interest be charged upon it. Additionally, the imposition
of a further unearned increase of Rs. 5,53,94,982.04/- for the second
transaction i.e. the Sale Deed dated 05.04.1994, executed by the petitioner
and the department is completely baseless and illegal.
20. He further submits that pursuant to the interim orders passed by this
Hon’ble Court, the conversion of the subject property has already been
granted and the conveyance deed has been executed. Therefore, the scope of
the present writ petition is now strictly restricted to challenging the legality
and validity of the unearned increase and other related dues wrongfully
demanded by the respondent.
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21. In support of his contentions, Mr. Singh has placed reliance on the
following decisions:
i. Delhi Development Authority v. Karamdeep Finance and
Investment (India) Private Limited and Ors. (2020) 4 SCC
136;
ii. Deepak Lamba & Anr. V. Delhi Development Authority 2003
SCC OnLine Del 997;
iii. H.R. Vaish v. Union of India & Ors. 2002 SCC OnLine Del
831.
22. Per contra, Ms. Kritika Gupta learned counsel appearing on behalf of
the respondent submits that the present petition is misconceived and is liable
to be dismissed at the threshold. The impugned demand has been raised
strictly in accordance with the terms of the Sub-Lease Deed, the
Supplementary Terms and Conditions of the Auction Sale, and the
governing conversion policy.
23. In response to the plea of limitation raised by the petitioner, she
contends that such plea is misconceived as there is no belated demand made
by the respondent. The liability has always existed, and the petitioner
himself has revived the issue by seeking conversion. A person who seeks
equitable relief must first comply with lawful obligations and cannot invoke
delay as a shield against payment of admitted dues.
24. She submits that the entire case of the petitioner is founded upon a
letter dated 29.09.1993, which is stated to have been addressed to the
respondent. It is categorically denied that the said letter was ever received by
the respondent. The petitioner has failed to place on record any proof of
service or receipt of the said letter. In the absence of such proof, no legal
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presumption can arise, and the petitioner cannot be permitted to build his
case on an unsubstantiated assertion.
25. She further submits that the petitioner was fully aware of the demand
towards unearned increase and composition fee, which was an integral part
of the Supplementary Terms and Conditions of the Auction Sale. The
petitioner, despite being aware of this liability, consciously chose not to
deposit the said amount and nevertheless proceeded with the execution of
the Sale Deed. Having accepted the auction terms unconditionally, the
petitioner is estopped from disputing the very liability which was expressly
attached to the transaction.
26. Furthermore, Ms. Gupta draws the attention of the Court to Clause 7
of the Sale deed dated 05.04.1994. The said clause categorically mandates
that the liability of payment of unearned increase to the DDA shall be borne
by the petitioner.
27. She submits that the execution of the Sale Deed dated 05.04.1994,
does not ipso facto extinguish the contractual and statutory obligations
attached to the leasehold rights. The petitioner was aware of the subsisting
conditions and cannot rely upon the execution of the Sale Deed dated
05.04.1994, to defeat the respondent’s lawful entitlement. Furthermore, it is
only during the petitioner’s application for conversion of land from
leasehold to freehold, did the respondent become aware of the Sale Deed
dated 05.04.1994.
28. She also submits that the conversion from leasehold to freehold is not
an automatic or vested right. It is a policy-based benefit, subject to
fulfilment of all conditions, including clearance of outstanding dues. Until
the petitioner deposits the amount lawfully demanded and completes the
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formalities prescribed under the Conversion Brochure, the respondent
cannot process the application for conversion.
29. She further submits that the impugned demand has been calculated
strictly in accordance with prevailing policy and valuation norms, and a
detailed break-up has already been furnished to the petitioner and placed on
record. The respondent has acted transparently and in accordance with
established procedure.
30. To buttress her contentions, Ms. Gupta has placed reliance on the
following decisions:
i. Delhi Development Authority v. Nalwa Sons (2020) 17 SCC
782;
ii. Indian Shaving Products Ltd. V. Delhi Development
Authority 2001 SCC OnLine Del 1123;
iii. Delhi Development Authority v. Videocon Industries Ltd. &
Anr. 2011 SCC OnLine Del 4725.
31. I have heard the rival contentions and also perused the records placed
by the parties.
32. The core dispute in the instant writ petition revolves around the
legality and validity of the unearned increase demanded by the
respondent/DDA, which is bifurcated into two distinct transactions -(i) the
first transaction i.e. the acquisition of the subject property by the department
vide order dated 23.01.1992 under Section 269 UD(1) of the Income Tax
Act, and (ii) the second transaction which culminated in the execution of the
Sale Deed dated 05.04.1994 in petitioner’s favour of the petitioner by the
department, pursuant to the auction of the subject property by the
department.
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33. Before progressing further, it is imperative to delve upon the
fundamental concept of ‘Unearned Increase’.The unearned increase demand
is a difference between premium paid by the lessee and its market value at
which he sells the property subsequently with permission of the lessor. The
government’s land owning agencies like DDA and L&DO originally lease
properties to citizens at concessional/preferential rates rather than market
value. To prevent these individuals from unfairly profiteering by later selling
the land at full market price, authorities like DDA would incorporate a
clause in the lease/sub-lease allowing them to claim 50% of the profit (the
‘unearned increase’) from the subsequent sale. Reference in this regard may
be had to the observations of this Court in Delhi Development Authority vs.
Sheri Roshan Lal Chopra & Ors. (RSA 23/2009), which extensively
explains the concept of ‘unearned increase’ in the following terms:
“6. First of all let us at this stage understand the meaning of
the word ‘unearned increase’. This expression is best
explained by means of an example. Where a lessee is granted
a perpetual lease or sub-lease by the DDA for a sum of let us
say Rs.100, and the sub-lessee/lessee voluntarily or
involuntarily through sale etc. transfers the suit property to a
third person for Rs.1000/-, then, Rs.900/- becomes the
unearned increase. Unearned increase is therefore the price
which the sub-lessee/lessee receives of transfer of the property
which is more than the price which has been paid by the sub-
lessee/lessee to the DDA. Out of the unearned increase, the
appellant in terms of the relevant clauses claims 50% of the
amount i.e. in the theoretical example before us a sum of Rs.450
i.e. half of Rs.900/-. The historical background and the reason
for governmental authorities like the DDA and the L&DO
claiming unearned increase by incorporation of a clause in
the lease/sub-lease deed was that when the properties were
given on lease/sub-lease to various persons in Delhi, the same
used to be transferred to them at concessionalSignature Not Verified
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rates/preferential rates and not at the market rates. Since the
transfer was at concessional rates, the lessee such as the DDA
retained with it the right that in case the suit property is
further transferred/assigned/sold etc, then, DDA becomes
entitled to claim 50% of the unearned increase because the
original sub-lessee/lessee cannot take benefit of the market
price although he had transferred the property by means of a
sub-lease/lease on concessional rates. To conclude this aspect I
would like to state that over the last decade or so, the DDA and
L&DO have now come out with policies whereby on payment of
conveyance charges the properties have been converted from
lease hold to free hold and once the property becomes free hold
then the person in whose name the conveyance deed is executed
becomes the exclusive owner (and not sub-lessee/lessee) and the
person who becomes an owner under the conveyance deed does
not have any further restrictions on transfer of the property
such as of payment of unearned increase. The DDA receives in
a way market price of the property by taking such charges
which are called as the conversion/free hold charges. With this
background let us now examine the relevant facts and issues in
this case.”
(emphasis supplied)
34. With regard to the first transaction pertaining to the subject property,
it is an undisputed fact that the department had addressed a letter dated
28.01.1992 to the DDA on acquiring the subject property, and enquired
about the charges leviable on the subject property pursuant to its acquisition.
In response, the DDA vide letter dated 07.02.1992 intimated the unearned
increase to the tune of Rs. 23,79,106/-, however, the said demand was never
paid by the department.
35. Subsequently, the subject property was put up for auction by the
department wherein the petitioner emerged as the highest bidder. The
petitioner places strong reliance upon the purported letter dated 29.09.1993
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addressed to the DDA wherein, referencing para 5 of the supplementary
auction terms, the petitioner explicitly acknowledged the then outstanding
liability of Rs. 23,79,106/- comprising unearned increase and composition
fees qua the first transaction, the liability of which, had been passed on to
the auction purchaser. Evidently, the petitioner sought to know the
formalities to be fulfilled to deposit the said specific amount and obtain the
necessary sale permission. However, the petitioner has not been able to
place on record an iota of document to substantiate his claim of sending the
aforesaid letter to the DDA or the said letter being received by the DDA. Be
that as it may, by placing the said letter on record, the petitioner as an
auction purchaser has acknowledged assuming department’s liability to pay
the unearned increase, to the tune of Rs. 23,79,106/-, to the DDA. The
purported letter dated 29.09.1993, addressed by the petitioner to the DDA
reads thus:
“September 29, 1993
Ajai Chowdhry
M-173 Greater Kailash II
New Delhi – 110 048The Deputy Director (Co-operative Societies)
Delhi Development Authority
I.N.A.
New DelhiDear Sir,
Sub: Plot No.10, Ishwar Nagar Co-operative
House Building Society Limited, Ishwar Nagar
New DelhiSignature Not Verified
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I have purchased Plot No. 10, Ishwar Nagar Co-operative House
Building Society Ltd. Ishwar Nagar, New Delhi from the Income
Tax Department in the public auction held on 17th September,
1993. As per Para 5 of the supplementary terms and conditions
of the auction, Delhi Development Authority has a claim of
Rs.23,79,106/- in respect of the said property, which liability has
been passed on to the auction purchaser. The said clause is
reproduced hereunder:-
“Property at S.No.5 is a lease-hold vacant plot of land.
The property was purchased by the Central Government
vide Appropriate Authority’s order dated 25.1.92. DDA
vide letter dated 2.2.92 has intimated the following dues
outstanding:-
1. Unearned increase (Provisional) Rs.23,24,881.00
2. Composition fees from 16.8.89 Rs. 54, 225. 00
———————
Rs.23,79 ,106.00
———————
This demand has to be paid by the auction purchaser. ”
By this letter, I want to know the formalities to be fulfilled by me
to deposit the said amount of Rs.23,79,106/- with you and to
obtain necessary sale permission for the transfer of the said
property by the Income Tax Department in my favour. For this
purpose, I am hereby authorising Shri JR Midha, Advocate, whose
power of attorney is also enclosed herewith.
Yours faithfully,
Ajai Chowdhry”
(emphasis supplied)
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36. At this juncture, it would also be apt to refer to Clause 7 of the Sale
Deed dated 05.04.1994, which was executed by the department in favour of
the petitioner pursuant to petitioner’s bid being accepted in the auction. Said
clause 7 also mandates that the liability of payment of unearned increase to
the DDA in respect of the subject property shall be borne by the petitioner.
The said clause is reproduced hereunder:
“Clause 7. The liability of payment of unearned increase
payable in respect of the said property to the Delhi Development
Authority shall be borne by the Vendee.”
37. The explicit contractual stipulation in Clause 7 of the Sale Deed dated
05.04.1994, also passes on the department’s liability on account of unearned
increase to the petitioner. Further, a reading of purported letter dated
29.09.1993 clearly establishes the fact that the petitioner had indeed
acknowledged and owned the liability on account of unearned increase, to
the tune of Rs. 23,79,106/-, payable to the DDA qua the first transaction. It
would also be significant to note that Mr. Chander Uday Singh, learned
senior counsel for the petitioner, without prejudice to petitioner’s contention
as to limitation, had also submitted that the petitioner will pay the unearned
increase to the tune of Rs. 23,79,106/-. However, the question of limitation
shall be dealt with later in this judgment.
38. Before adverting to the imposition of the unearned increase demand to
the tune of Rs. 5,53,94,982.04/- levied by the DDA on the second
transaction, apposite would it be to refer to Clause 6 of the perpetual sub-
lease deed dated 16.08.1979, vide which the subject property was allotted to
original allottee-Mr. Vidur Bhaskar. Clause 6 reads thus:
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“(6) (a) The Sub-Lessee shall not sell, transfer, assign or
otherwise part with the possession of the whole or any part of the
residential plot in any form or manner, benami or otherwise, to a
person who is not a member of the Lessee.
(b) The Sub-Lessee shall not sell, transfer, assign or otherwise
part with the possession of the whole or any part of the
residential plot to any other member of the Lessee except with
the previous consent in writing of the Lessor which he shall be
entitled to refuse in his absolute discretion:
PROVIDED that, in the event of the consent being given, the
Lessor may impose such terms and conditions as he thinks fit
and the Lessor shall be entitled to claim and recover a portion
of the unearned increase in the value (i.e. the difference
between the premium paid and the market value)of the
residential plot at the time of sale, transfer, assignment, or
parting with possession, the amount to be recovered being fifty
per cent of the unearned increase and the decision of the
Lessor in respect of the market value shall be final and binding
PROVIDED FURTHER that the Lessor shall have the pre-
emptive right to purchase the property after deducting fifty per
cent of the unearned increase as aforesaid.”
(emphasis supplied)
39. This Court finds the demand of unearned increase on second
transaction to be fundamentally misconceived and legally unsustainable.
The very concept of ‘unearned increase'(i.e. the difference between the
premium paid and the market value), as noted above, hinges entirely on a
sub-lessee reaping profit margin while selling the allotted property at market
price, after having been allotted the same at a concessional/preferential rate.
This foundational premise is entirely absent in the second transaction
whereby the department auctioned the property to the petitioner.
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40. The reason is three-fold – Firstly, the second transaction is not a
transfer by lessee/sub-lessee upon seeking permission/consent of the
lessor/DDA. It is the department which has auctioned the subject property
after having acquired the same from the original allottee/sub-lessee namely,
Mr. Vidur Bhaskar, by exercising its statutory power under section 269
UD(1) of the Income Tax Act. Secondly, the price at which the department
acquired the subject property from the said sub-lessee cannot be construed
as premium paid by the sub-lessee to the lessor (i.e. DDA) as the said rate is
not the concessional/preferential rate at which allotment has been made by
the lessor/DDA. Thirdly, the transaction by way of auction by the
department is not a transfer of the subject property with the consent of the
lessor/DDA, rather it is a sale of statutorily acquired property, by exercise of
power under Schedule II of the Income Tax Act or akin thereto.
41. Reference in this regard may also be had to the decision of the
Hon’ble Supreme Court in Karamdeep Finance (supra) wherein the court
was confronted with similar issue. In the aforesaid case, the Income Tax
Department had statutorily acquired a leasehold property under Section 269
UD of the Income Tax Act, 1961. The unearned increase demand, to the
tune of Rs. 17,88,114.55/-, was paid by the Income Tax department to the
DDA, following the statutory acquisition. Subsequently, the said property
was put up for auction by the department wherein the appellant therein
emerged as the highest bidder and the property was conveyed to the
appellant by the department, through a Sale Deed. Thereafter, the appellant
sought conversion of the property from leasehold to freehold, which
triggered a demand of unearned increase to the tune of Rs. 1,43,90,348/- qua
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second transaction. In this backdrop, inter alia, it was observed that the
DDA was not entitled to raise any demand of unearned increase from the
appellant as the Income Tax Department was not a lessee nor it had sought
any permission or consent of the lessor/DDA for transferring the property to
the auction purchaser. Further, the rights of lessee were purchased by the
Income Tax Department by exercising its power under Section 269UD(1) of
the Income Tax Act. It was further held that when the department makes an
auction of the property acquired under Section 269UD(1) of the Income Tax
Act on the market value, the lessor/DDA cannot claim unearned increase
demand. Incidentally, in the said case the Income Tax Department had
already paid the unearned increase demand qua the first transaction whereby
it had acquired the property from the original lessee/sub-lessee. The relevant
extracts from the said judgment, reads thus:
“16. We have already noticed Clause (4)(a) of the perpetual
lease deed dated 18-3-1970, which provided that in event
sanction is given by the lessor to the lessee for sale, transfer or
assignment, the lessor shall be entitled to claim and recover a
portion of the unearned increase in the value. The unearned
increase being the difference between the premium paid and
the market value. The object behind the said clause was that a
lessee when is permitted to transfer the leasehold rights, the
lessor should not be deprived of the difference between the
premium paid and the market value. The clause was inserted
in the perpetual lease to compensate the lessor. The present is
not a case where the lessee is making any transfer or seeking
any permission from the lessor to give his consent.
17. In the present case, the appropriate authority has exercised
its power under Section 269-UD of the Income Tax Act for the
purchase of the property by the Central Government. It is by
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purchased by the Central Government. The Central
Government issued auction notice for auction of property in
question. All bids in auction of a property are given normally
to match the market price of the property. When the petitioner
gave highest bid and became the successful auction-purchaser,
the auction-purchase has to be treated on the basis of market
value of the property. Clause (4)(a) of perpetual lease as noted
above provided for payment of unearned increase to cover up
the difference between premium paid and the market value.
When the auction was made on the market value of the
property, we are of the view that there was no question of claim
of unearned increase by DDA.
18. We further noticed that on purchase of the property under
Section 269-UD of the Income Tax Act, the Income Tax
Department has already paid unearned increase to DDA. We,
thus, are of the view that the High Court has rightly held that
DDA was not entitled to raise any demand of unearned
increase from the writ petitioner. We, thus, do not find any
merit in the appeal filed by DDA, which deserves to be
dismissed.”
(emphasis supplied)
42. In the present case as well, as held in Karamdeep Finance (supra),
indubitably, when the subject property was auctioned by the department, the
bid of Rs. 1,12,90,000/- given by the petitioner represented the market value
of the property at that given point in time, therefore, on the analogy of ratio
in said decision, the question of claim of unearned increase by DDA does
not arise in case of second transaction.
43. Thus, the imposition of an unearned increase amounting to Rs.
5,53,94,982.04/- levied on the second transaction i.e. the execution of the
Sale Deed dated 05.04.1994, is ex-facie arbitrary, without authority of law,
and cannot be sustained.
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44. Now coming to the submission of Mr. Chander Uday Singh that the
impugned demand raised by the DDA is hopelessly time barred, to be noted
that the same is to be considered only in the context of first transaction qua
the subject property, as the demand apropos second transaction has been
held to be untenable. Mr. Singh has stated that from 05.04.1994, when the
subject property was conveyed to the petitioner by a duly registered Sale
Deed dated 05.04.1994, until the year 2022, the respondent never raised any
demand whatsoever on account of unearned increase. Hence, the DDA
cannot raise a stale demand after nearly three decades, merely because the
petitioner subsequently applied for conversion of the property from
leasehold to freehold. Further, it is contended that the respondent, being a
statutory authority, cannot claim the benefit of any extended period of
limitation and is squarely governed by the provisions of the Limitation Act,
1963.
45. At first blush, the contention raised by the learned Senior Counsel
seems attractive, given the DDA’s evident indolence in raising the demand
following the execution of the Sale Deed in 1994, but it cannot be taken
forward because of settled jurisprudential proposition that while the bar of
limitation may prevent a person from instituting a suit to recover an
outstanding amount, but it does not mean the debt itself ceases to exist. In
other words, the remedy is barred, but the underlying right remains entirely
unaffected. Consequently, before the DDA is compelled to relinquish its
paramount title and convey freehold tenure to the petitioner, it is legally
entitled to insist that all accrued dues payable in respect of the subject
property be cleared.
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46. However, pursuant to the interim orders of this Court in the instant
case, the subject property has already been converted from leasehold to
freehold, and the conveyance deed dated 10.01.2024 stands executed. Be
that as it may, the obligation to pay the unearned increase apropos first
transaction, is contractually binding under Clause 7 of the Sale Deed dated
05.04.1994. Therefore, when the petitioner actively initiated the conversion
process on 18.02.2022, seeking to convert the subject property from
leasehold to freehold, the DDA was well within its right to levy and demand
the unearned increase. The impugned demand of Rs. 23,79,106/- is thus, a
valid exercise of DDA’s right to have the existing property dues cleared
prior to conversion, rendering it legally enforceable and undefeated by the
mere passage of time.
47. Reference in this regard may be had to the decision of this Court in
Union of India& Anr. v. Jor Bagh Association Registered & Ors. 2012
SCC OnLine Del 1230 wherein the Court while dealing with similar
situation, observed as under:
“76. The argument that where the demands were created but
not enforced, and the period of limitation to recover the same
has expired, to permit the lessor to recover the same as a
condition for conversion would breach the well-recognized
jurisprudential principle that what cannot be done directly
cannot be done indirectly, as observed and applied in the
decision reported as JT 2009 (10) SC 645 Subhash Chandra v.
Delhi Subordinate Services Selection Board, has no
application on the subject at hand, for the reason it is settled
law that where the bar of limitation prevents a person from
suing to recover the amount due, it does not mean that the
amount ceases to be due. The right remains unaffected. Only the
remedy is barred. If the lessor has a demand with respect to aSignature Not Verified
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property, before the lessor is compelled to relinquish its title
and convey free-hold tenure, the lessor would be permitted to
insist that dues payable to it must be cleared.
XXXX XXXX XXXX XXXX XXXX
80. We summarize our opinion and then proceed to frame the
question of law to be referred to a larger Bench:-
(A)………(G)
(H) A demand towards damages on account of misuse and/or
unauthorized construction, if barred by limitation for the
purposes of recovery thereof, would not denude the lessor the
power to demand the same as a condition to convert lease-hold
tenure into free-hold tenure.”
(emphasis supplied)
48. Having held that the demand of unearned increase pertaining to the
first transaction is not barred by limitation and is legally tenable, this Court
must now delve upon the last yet crucial issue pertaining to the quantum of
interest, if any, leviable on the outstanding unearned increase to the tune of
Rs. 23,79,106/-.
49. The law is well settled that interest is also payable in equity in certain
circumstances. The rule in equity is that interest is payable even in the
absence of any agreement or custom to that effect, and the same has been
held to be payable on a market rate. It is equally settled that the rate of
interest should be determined in a manner that balances both fairness and
financial impact, taking into account the ‘loss of use’ principle and
economic prudence, in the specific facts of each case.
50. This Court finds that both parties share the blame for the delayed
payment of the Rs. 23,79,106/- unearned increase. Although the petitioner
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consciously assumed the department’s liability under the Sale Deed dated
05.04.1994 and claimed to have sent a letter dated 29.09.1993
acknowledging the debt, he has provided no proof of its despatch or delivery
nor made any further efforts to deposit the amount of unearned increase, the
liability which was explicitly acknowledged.
51. Likewise, the DDA demonstrated severe administrative lethargy;
apart from an initial communication dated 07.02.1992 to the department
regarding the quantification of demand qua first transaction, the DDA
subsequently failed to raise demand to either the petitioner or the
department.
52. That apart, DDA’s revised impugned computation of unearned
increase (annexed as Document 6 to the counter-affidavit of the DDA) in
respect of the same transaction is at variance with the earlier demand of Rs.
23,79,106/-, despite DDA in its counter-affidavit clearly admitting
crystallization of demand of Rs. 23,79,106/- on account of the unearned
increase qua first transaction, and the same was also made a part of the
Supplementary Terms and Conditions of the auction sale. The relevant
extract from DDA’s counter- affidavit reads thus:
“iv. That the Petitioner was aware of the demand which was
raised by the Answering Respondent at the time of Sale deed but
chose not to pay a sum of Rs. 23,79,106/- which was part of
Supplementary Terms and Conditions of the Auction Sale.
Therefore, the Petitioner cannot take the plea that he was not
liable to pay the unearned increase in the value of the
property.”
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53. The formulation of revised figure of Rs. 65,29,080.34/- on account of
unearned increase is thus, arbitrary and unjustified. Even the rate of interest
levied by the DDA in its revised computation is stated to be 14% p.a. for 30
years 02 months which is exorbitant and against the principle of restitution,
considering DDA’s lackadaisical approach and passage of very long period.
54. Given concurrent negligence of the petitioner and the DDA, this court
is of the view that the petitioner is liable to pay interest on the unearned
increase demand to the tune of Rs. 23,79,106/-, but the rate of interest will
have to be decided bearing in mind the totality of circumstances and not
strictly as per the revised calculations carried out by the DDA wherein the
unearned increase qua first transaction of the subject property has been re-
calculated to Rs.65,29,080.34/- and interest levied thereon at the rate 14%
per annum, departing from earlier demand of Rs. 23,79,106/-, without any
justification being put forth.
55. For deciding the rate of interest, it is profitable to refer to the decision
of the Hon’ble Supreme Court in DDA and Ors. v. Joginder S. Monga
(2004) 2 SCC 297 wherein the Hon’ble Court has expounded on the
applicability of the rule to award interest in equity. The relevant extracts
from the aforesaid judgment, reads thus:
“52. By reason of the aforementioned interim order, the High
Court directed payment of 18% interest. The rate of interest
which was prevailing at the relevant time was 18%. However,
the bank rate of interest has since gone down drastically.
Grant of interest pendente lite and for future is a discretionary
remedy. The court of appeal can, therefore, exercise the same
power while finally disposing of the lis as that of the High
Court keeping in view the principle engrafted in Section 34 ofSignature Not Verified
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the Code of Civil Procedure. The rate of interest may have to
be fixed having regard to the principle of restitution.
53. Recently, this Court has examined this principle in South
Eastern Coalfields Ltd. v. State of MP [(JT 2003 (supp. 2) SC
443], stating: (SCC p. 661, para 21)
’21.Interest is also payable in equity in certain
circumstances. The rule in equity is that interest is payable
even in the absence of any agreement or custom to that
effect though subject, of course, to a contrary agreement
(See: Chitty on Contracts, Edition 1999, Vol. II, Para 38-
248, at page 712). Interest in equity has been held to be
payable on a market rate even though the deed contains no
mention of interest. Applicability of the rule to award
interest in equity is attracted on the existence of a state of
circumstances being established which justify the exercise
of such equitable jurisdiction and such circumstances can
be many.’
54. Despite the same, the Court reduced the statutory rate of
interest from 24% to 12% stating:
’30. So far as the appeal filed by the State of Madhya
Pradesh seeking substitution of rate of interest by 24% per
annum in place of 12% per annum as awarded by the High
Court is concerned, we are not inclined to grant that relief
in exercise of our discretionary jurisdiction under Article
136 of the Constitution especially in view of the opinion
formed by the High Court in the impugned decision. The
litigation has lasted for a long period of time. Multiple
commercial transactions have taken place and much time
has been lost in between. The commercial rates of interest
(including bank rates) have undergone substantial
variations and for quite sometime the bank rate of interest
has been below 12%. The High Court has, therefore,
rightly (and reasonably) opined that upholding entitlement
to payment of interest at the rate of 24% per annum would
be excessive and it would meet the ends of justice if the
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annum on the facts and in the circumstances of the case.
We are not inclined to interfere with that view of the High
Court but make it clear that this concession is confined to
the facts of this case and to the parties herein and shall not
be construed as a precedent for overriding Rule 64A of the
Mineral Concession Rules, 1960. It is also clarified that
the payment of dues should be cleared within six weeks from
today (if not already cleared) to get the benefit of reduced
rate of interest of 12%; failing the payment in six weeks
from today the liability to pay interest @ 24% per annum
shall stand.’
XXXX XXXX XXXX XXXX
56.We may notice that in Pure Helium India Pvt. Ltd. vs. Oil &
Natural Gas Commission [2003 (8) SCALE 553], the rate of
interest awarded by the arbitrator was reduced to 6% in
exercise of its power under Article 142 of the Constitution of
India.
57.In the facts and circumstances of this case, we are of the
opinion that grant of 9% interest shall meet the ends of justice.
We, therefore, while dismissing the appeals direct that instead
and place of 18% interest, the appellant shall be liable to pay
interest @ 9% per annum. The amount payable to the
respondents must be paid within a period of six weeks from
this date together with interest failing which the respondents
would be entitled to claim 18% interest on the expiry of the
said period till actual payment is made.”
(emphasis supplied)
56. Likewise, it would also be advantageous to refer to a recent decision
of the Hon’ble Supreme Court in I.K. Merchants Pvt. Ltd. and Others v.
State of Rajasthan and Others 2025 SCC OnLine SC 692 wherein the
Hon’ble Supreme Court again dealt with the issue of levying the interest rate
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on the basis of equitable considerations. The relevant paras of the said
judgment, reads thus:
“16. Be it noted, while the discretion to award interest, whether
pendente lite or post-decree, is well recognized, its exercise must
be guided by equitable considerations. The rate and period of
interest cannot be applied mechanically or at an unreasonably
high rate without any rationale. Though it is not possible to
arrive at the actual value of improvement or the inflation on the
fair consideration, if paid at the relevant point of time, it is just
and necessary that the rate of interest must be a reparation for
the appellant. The Court must ensure that while the claimant is
fairly compensated, the award does not become punitive or
unduly burdensome on the Judgment Debtor. Therefore, the
rate of interest should be determined in a manner that balances
both fairness and financial impact, taking into account the
“loss of use” principle and economic prudence, in the specific
facts of each case.
17. Considering the prolonged pendency of the dispute
regarding the valuation of shares, which has only been
determined recently, and the substantial share amount
involved, and also keeping in mind that this is a commercial
transaction, and the entire burden of interest along with
principal value falls upon the Government, it is necessary in the
present case to award reasonable interest, in order to strike a
balance between the parties. Thus, in these peculiar facts and
circumstances, we deem it fit, just and appropriate to award
simple interest at the rate of 6% per annum from July 1975, on
the enhanced valuation of shares till the date of decree and
interest at the rate of 9% per annum from the date of decree till
the date of realisation. The interest shall be paid along with the
amount due towards the enhanced value of the shares, after
adjusting the amount already paid, to the appellants, within a
period of two months from today.”
(emphasis supplied)
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57. In light of the legal position on the payment of interest on equitable
considerations and regard being had to the facts and circumstances of the
present case and the downward trend in bank rates, this court deems it
appropriate to award simple interest at the rate of 7% per annum from the
date of the Sale Deed i.e. 05.04.1994 executed by the department in favour
of the petitioner till the date of pronouncement of this judgment.
58. However, before parting, the decisions relied upon by the respondent
may also be adverted to. The reliance placed by the respondent on the
decisions in Nalwa Sons (supra), Indian Shaving Products Ltd. (supra) and
Videocon Industries Ltd. (supra) is misplaced. Factually, Nalwa Sons
(supra) involved a High Court-sanctioned demerger where the original
lessee’s property was transferred to and vested in a newly floated public
limited company. Similarly, both Indian Shaving Products (supra) and
Videocon Industries Ltd. (supra) dealt with schemes of amalgamation
where the original lessee companies merged into distinct corporate entities,
resulting in the leasehold properties being transferred to the transferee
companies. In all three instances, there is no statutory acquisition of the
subject property and the courts held that such corporate restructuring, which
vested assets into new legal entities, constituted a definitive ‘transfer’ of
property rights, thereby lawfully triggering the unearned increase demand.
In stark contrast, the present matter involves statutory acquisition of the
subject property by the department, which was subsequently put to
auction/sale by the department on 17.09.1993.
59. Since it is an admitted position that pursuant to the interim orders
passed by this Court, the conversion of the subject property has already been
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granted and the conveyance deed dated 10.01.2024 has been executed, the
present petition is disposed of with the following directions:
(i) The impugned demand dated 06.12.2022 raised by the
respondent/DDA on its e-portal, to the extent it levies an unearned
increase of Rs. 5,53,94,982.04/- on the second transaction, is
hereby quashed and set aside. As held above, the auction sale by
the Income Tax Department after having statutorily acquired the
subject property does not trigger a demand for unearned increase
by the DDA.
(ii) The petitioner is held liable to pay the unearned increase amount
of Rs. 23,79,106/- pertaining to the first transaction along with
simple interest at the rate of 7% per annum from the date of the
Sale Deed dated 05.04.1994 up-to the date of pronouncement of
this judgment .
(iii) Accordingly, the respondent/DDA shall raise fresh demand in light
of the direction given herein above and the same shall be
communicated to the petitioner and the Registry within four weeks
from the date of this judgment.
(iv) Sequel to above, the Registry is directed to deduct the fresh
demand amount, communicated by the DDA, from the monies
already deposited by the petitioner i.e. Rs. 8,94,98,546/- and the
same shall be transferred to the DDA. The remaining amount shall
be remitted back to the petitioner along with interest accrued
thereon.
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60. The writ petition is partly allowed and disposed of in the aforesaid
terms. All pending applications, stand disposed of accordingly.
VIKAS MAHAJAN, J.
APRIL 21, 2026
N.S. ASWAL
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