Court’s decision
The Bombay High Court allowed the writ petition and set aside the orders passed by the Revenue Minister, the Additional Commissioner, and the Collector which had fastened liability of over ₹26 crore as unearned income on the Petitioner. The Court held that the very foundation of the impugned demand was legally unsustainable, as a change in shareholding or control of a company does not amount to a transfer of the company’s immovable assets, including land granted by the State.
The Court further held that the show cause notice itself was vitiated, as the decisive ground relied upon in the final orders—namely, that disinvestment and change in control amounted to transfer—was never put to the Petitioner. The proceedings were also found to be in breach of principles of natural justice, including non-disclosure of material relied upon. Consequently, the demand for unearned income recoverable as land revenue was quashed in its entirety.
Facts
The dispute concerned a parcel of land allotted by the State Government for construction of staff quarters to a central government telecommunications entity in the early 1990s. Construction commenced after allotment and was completed in the late 1990s, following which an occupation certificate was granted. The land continued to be used for the very purpose for which it was originally allotted.
Years later, following the Government of India’s disinvestment policy, the shareholding of the company holding the land changed substantially and the company’s name was also changed. Despite no conveyance, assignment, or registered transfer of the land, a show cause notice was issued alleging breach of grant conditions and calling upon the Petitioner to explain why unearned income should not be recovered on the footing that the land stood transferred without permission.
Issues
The principal issue before the Court was whether dilution of government shareholding and change in control of a company pursuant to disinvestment could be construed as a “transfer” of government-granted land or an “interest therein” so as to attract liability for unearned income. Ancillary issues arose regarding limitation, scope of the show cause notice, violation of natural justice, and whether grounds not stated in the notice could form the basis of the final order.
Petitioner’s Arguments
The Petitioner contended that there was no transfer of land in law, as the corporate entity holding the land remained the same, with only a change in name and shareholding. It was argued that shareholders have no proprietary interest in the assets of a company and that ownership of immovable property can be transferred only in accordance with the Transfer of Property Act through a registered conveyance.
It was further argued that the show cause notice never alleged that change in shareholding amounted to transfer, and therefore the final orders travelled beyond the notice. The Petitioner also contended that reliance on undisclosed reports and introduction of new grounds at the appellate stage vitiated the entire proceedings for breach of natural justice.
Respondent’s Arguments
The State argued that the land was originally granted to a government department and that subsequent corporate restructuring resulted in transfer of possession, control, and beneficial interest without prior permission. It was contended that even if no formal conveyance was executed, the substance of the transaction showed an indirect transfer of interest in public land.
The State relied on the principle that what cannot be done directly cannot be permitted indirectly, and submitted that corporate law technicalities must yield to public interest when government land is involved. It was also argued that the Government Grants Act and land revenue law permitted recovery of unearned income upon breach of grant conditions.
Analysis of the law
The Court undertook a detailed analysis of the settled distinction between a company and its shareholders. It reaffirmed that a company is a juristic person separate from its shareholders, and that transfer of shares—even of a controlling stake—does not result in transfer of the company’s assets. Ownership of land remains with the company unless transferred by a legally recognised mode.
The Court further held that conditions in a government grant must be strictly construed and cannot be expanded by implication. In the absence of any prohibition on change in shareholding or management in the allotment terms, the State could not introduce such a restriction indirectly by characterising disinvestment as a transfer of land.
Precedent Analysis
The Court relied on a long and consistent line of Supreme Court and High Court authority holding that shareholders have no right, title, or interest in the property of a company. Decisions have repeatedly clarified that even substantial change in shareholding does not affect ownership of corporate assets.
The Court distinguished cases where corporate restructuring was used as a device to indirectly transfer a sole asset, noting that such situations involved fundamentally different facts. Where land is merely one of several assets of a continuing corporate entity, dilution of shareholding cannot be equated with transfer of land or interest therein.
Court’s Reasoning
The Court found that the show cause notice failed on multiple counts. The allegation regarding delayed construction was barred by limitation, having been raised more than a decade after completion. The allegation of misuse of land was unsupported by any evidence. Most critically, the finding that disinvestment amounted to transfer was entirely absent from the notice.
The Court held that an authority cannot improve its case at the stage of adjudication by introducing new grounds. It also found that reliance on undisclosed reports and denial of an effective opportunity to meet the case violated fundamental principles of natural justice. An unfair initial process could not be cured by a so-called fair appeal.
Conclusion
The Bombay High Court conclusively held that a change in shareholding or control of a company does not amount to transfer of government-granted land. The impugned orders demanding unearned income were set aside as being contrary to settled corporate law, beyond the scope of the show cause notice, and vitiated by breach of natural justice.
Implications
This judgment is a significant reaffirmation of corporate separateness in disputes involving government land grants. It curbs the tendency of revenue authorities to equate disinvestment or takeover with transfer of land and provides certainty to companies holding government-allotted land. The ruling also reinforces strict adherence to show cause notices and procedural fairness in fiscal and land revenue actions.