Bombay High Court Dismisses MIDC’s Writ Petition Against DRAT Order: "Mortgage Executed Without MIDC’s Consent Constitutes Breach, Not Illegality; Subletting Charges Not Imposable Without Statutory Authority"
I. Court’s Final Orders
- Writ Petition Dismissed: The Bombay High Court held there was no legal error in the DRAT’s decision dated 18.01.2011 and dismissed MIDC’s writ petition in entirety.
- DRAT’s Findings Upheld:
- The mortgage executed by Benelon Industries (BI) in favour of Union Bank of India (UBI) without MIDC’s consent was not void; it constituted a breach, not illegality.
- Subletting charges could only be imposed for the limited period between 18.08.2007 to 10.10.2008, as DRAT held.
- No Power to Impose Subletting Charges: The Court held that MIDC’s Circular dated 15.03.2007 was not issued under statutory authority and could not be the basis for demanding subletting charges.
- Auction Sale to KPPL Stands Valid: Kalindi Properties Pvt. Ltd. (KPPL), the auction purchaser, retains valid rights over the plot.
II. Facts in Detail
- Lease & Restriction: Plot No. D-9, Marol Industrial Area, was leased by MIDC to BI on 23.03.1979 for 95 years, with restrictions under Clause 2(t) against assignment or mortgage without prior written consent.
- Mortgage Without Consent: Despite the restriction, BI mortgaged the leasehold property to UBI without obtaining consent.
- Loan Default & Litigation:
- UBI filed Suit No. 2118 of 1990 against BI, and obtained an ex parte decree on 09.02.1996.
- After enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, proceedings shifted to the DRT, which issued a recovery certificate on 28.06.2004.
- MIDC’s Action:
- On 18.08.2007, MIDC inspected the plot and discovered unauthorized usage.
- MIDC issued a show-cause notice to BI on 16.10.2007 but took no further steps under Clause 4 for termination or re-entry.
- Auction & KPPL Purchase: DRT auctioned the plot on 10.10.2008. KPPL emerged successful and paid ₹14.51 crore. On 02.02.2009, the sale was confirmed in KPPL’s favour.
- MIDC’s Legal Action:
- MIDC filed Misc. App. No. 37 of 2008 before DRT under Section 19(25) to set aside recovery; it was dismissed.
- Appeal No. 25 of 2009 was filed before DRAT, which was partly allowed on 18.01.2011.
- Challenged Before High Court: MIDC filed the present writ petition under Article 226 challenging DRAT’s 2011 order.
III. Legal Issues
- Whether mortgage of leasehold interest without consent under Clause 2(t) is void?
- Whether subletting charges levied by MIDC were legally sustainable?
- Whether the DRAT rightly limited subletting charges from 18.08.2007 to 10.10.2008?
- Whether UBI’s decree was vitiated by fraud?
IV. Petitioner’s (MIDC’s) Arguments
- Mortgage without consent under Clause 2(t) is void, not just a breach.
- Referred to State of U.P. v. United Bank of India (2015 INSC 867) to argue mortgage was illegal without statutory sanction.
- Cited Sections 15, 43-1A, 64, and 67 of the MIDC Act and Regulations of 1975 to justify subletting charges.
- Argued that subletting charges are valid and should be imposed till the present date, not just till auction.
- Argued that the decree obtained by UBI was vitiated by suppression and fraud.
- Relied on State of Punjab v. Davinder Pal Singh Bhullar (2011) 14 SCC 770 to say actions based on void deeds are also void.
V. Respondent’s (KPPL’s) Arguments
- DRAT rightly held that mortgage was not void; MIDC never terminated lease under Clause 4.
- MIDC was inert—after issuing the show-cause, it never took action for re-entry.
- KPPL purchased the plot bona fide, paid full amount including differential premium.
- Circular dated 15.03.2007 had no statutory force; thus, MIDC had no power to levy subletting charges.
- Cited Prakash Fabricators Pvt. Ltd. v. MIDC (2010(3) Mh.L.J. 413)—Circulars without legislative authority cannot impose charges.
- Fraud plea by MIDC was never raised before DRT or DRAT and involved mixed questions of law and fact.
VI. Court’s Detailed Reasoning
1. Mortgage Without Consent Not Void
- Clause 2(t) only restricts mortgage without consent, and Clause 4 provides MIDC remedy via termination/re-entry.
- MIDC failed to act after notice in 2007; hence, it waived its right to declare breach.
- Creation of mortgage in breach of lease covenant does not render it void.
- State of U.P. v. United Bank of India was inapplicable—concerned Nazul land requiring Government sanction, not governed by lease terms.
2. Subletting Charges: No Legal Authority
- Referred to Court’s earlier order dated 16.08.2010, which already doubted legality of subletting charges.
- MIDC Regulations of 1975 do not authorize subletting charges.
- Circular dated 15.03.2007 not issued under statutory power.
- Prakash Fabricators case followed: Circular not backed by law cannot be basis for penalty.
3. DRAT’s Limitation of Subletting Charges Upheld
- DRAT restricted subletting charges from 18.08.2007 (inspection date) to 10.10.2008 (auction).
- KPPL did not challenge this order; hence, it is binding on KPPL.
- MIDC’s grievance about changing stand was unsupported.
4. Challenge to Decree on Grounds of Fraud Rejected
- MIDC never raised fraud before DRT or DRAT.
- Fraud involves mixed question of law and fact.
- Cannot be examined afresh under Article 226 without prior adjudication.
5. Payment of Differential Premium by KPPL
- KPPL paid ₹1.71 crore + ₹52,000 as directed.
- These amounts were based on MIDC’s own claims and satisfied the lease conditions.
- Therefore, reliance on Aurangabad Carbon Produces Pvt. Ltd. case by MIDC was misplaced.
VII. Conclusion
- No interference warranted with DRAT’s judgment dated 18.01.2011.
- All directions of DRAT upheld, including subletting charges limited to specific dates and transfer of balance to Income Tax Department.
- Writ Petition dismissed.
- Pending Interim Applications also disposed.
VIII. Implications of the Judgment
- Sets precedent that breach of lease terms like mortgage without consent does not render transaction void unless termination action is taken.
- Clarifies that regulatory bodies like MIDC cannot levy charges without specific legislative authority.
- Auction purchasers like KPPL who act in good faith and pay due consideration are protected.
- Highlights importance of timely enforcement of contractual rights (e.g., termination clauses).
- Reiterates that fraud allegations must be specifically pleaded and tried before being considered in writ jurisdiction.
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