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”

Rawlaw

4 months ago

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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.

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.

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?

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.

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.

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.

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.

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.

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.

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.

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.