Allowed

State of Karnataka v. M/S Bellary Spinning

Karnataka HC18 Sept 2025OSA/9/1999

Case brief

AI extract

What is this about?

The High Court held that a land grant conferred limited rights rather than absolute ownership. The Government retained the power to resume the land for public purpose or condition breach. Consequently, the State was entitled to resume the entire 75 acres despite winding up and mortgage.

What did the court decide?

Appeal allowed; judgment of the Company Judge set aside; State entitled to resume the entire 75 acres of land.

State of Karnataka Vs M/S Bellary Spinning — Property and Title | Karnataka HC (2025)

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OSA No. 9 of 1999

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INDEX

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SL. NOS.	CONTENTS	PAGE NOS.
1.	BRIEF FACTS OF THE CASE	4-8
2.	HISTORY OF THE LITIGATION	8-11
3.	JUDGMENT OF THE SUPREME COURT IN APPEAL	11-21
4.	SUBMISSIONS ON BEHALF OF THE APPELLANTS	21-28
5.	SUBMISSIONS ON BEHALF OF THE RESPONDENTS	29-35
6.	STATUTORY PRESCRIPTION	35-42
7.	ANALYSIS AND CONCLUSION	42-55

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OSA No. 9 of 1999

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 18^TH DAY OF SEPTEMBER, 2025

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PRESENT

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THE HON'BLE MR. JUSTICE D K SINGH

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AND

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THE HON'BLE MR. JUSTICE VENKATESH NAIK T ORIGINAL SIDE APPEAL NO. 9 OF 1999

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BETWEEN:

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STATE OF KARNATAKA REPRESENTED BY ITS SECRETARY DEPARTMENT OF REVENUE VIDHANA SOUDHA BANGALORE

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THE DIVISIONAL COMMISSIONER GULBARGA DIVISION GULBARGA

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THE DEPUTY COMMISSIONER

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Digitally signed by VASANTHA KUMARY B K

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Location: HIGH COURT OF KARNATAKA

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BELLARY DISTRICT BELLARY

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(BY SRI KIRAN V. RON, AAG A/W SMT. PRATHIBHA R.K., AGA)

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…APPELLANTS

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AND:

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M/S. BELLARY SPINNING & WEAVING COMPANY LIMITED (IN LIQUIDATION) REPRESENTED BY THE OFFICIAL LIQUIDATOR HIGH COURT OF KARNATAKA BANGALORE

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SYNDICATE BANK MAIN BRANCH BELLARY REPRESENTED BY THE MANAGER

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…RESPONDENTS

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(BY SRI K.S. MAHADEVAN, ADVOCATE FOR R-1; SRI DHYAN CHINNAPPA, SENIOR COUNSEL FOR SRI VIKRAM UNNI RAJAGOPAL, ADVOCATE FOR R-2)

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THIS OSA IS FILED UNDER SECTION 6 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE JUDGMENT AND ORDER DATED 03.11.1998 PASSED BY THE LEARNED COMPANY JUDGE OF THIS HON'BLE COURT IN COMPANY APPLICATION NOS.1035/96, 1036/96, 481/98 AND 75/87 IN COMPANY PETITION NO.34/86 AND ALLOW THIS ORIGINAL SIDE APPEAL.

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THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 07.08.2025, COMING ON FOR PRONOUNCEMENT THIS DAY, D.K. SINGH J., PRONOUNCED THE FOLLOWING:

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CORAM: HON'BLE MR. JUSTICE D K SINGH and HON'BLE MR. JUSTICE VENKATESH NAIK T

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CAV JUDGMENT

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(PER: HON'BLE MR. JUSTICE D K SINGH)

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BRIEF FACTS OF THE CASE :

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Erstwhile State of Mysore, now the State of Karnataka, had made a grant of 75 acres of land in Sy.Nos.597/B-1 A2-B4 to M/s. Bellary Spinning and Weaving Company Limited (hereinafter referred to as 'the respondent - Company') at the rate of Rs.500/- per acre, sub-division fee of Rs.3/- and annual ground rent of Rs.6.25 per acre. The grant was also subject to payment of other levies as per the Rules and the general and special conditions to be imposed by the Deputy Commissioner, Bellary District. The general and special conditions of grant of 75 acres of land in Sy.No.597/B-1 A2-B4 in Bellary to the respondent-Company inter alia would provide as under:-

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i. The land was to be used for the purpose of constructing the spinning and weaving mill and for no other purpose.

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ii. No other building was to be constructed without the previous permission of the Deputy Commissioner, Bellary.

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iii. The Government would have the right to resume the land wholly or in part with any building thereon in the event of infringement of any terms and conditions of grant. In the event of such resumption, no compensation would be paid for any improvements that could have been effected or other works that could have been executed on the land by the allottee or the grantee.

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iv. The grantee would not be entitled to repayment of

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any amount that might have been paid to the Government for the grant.

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v. The direction could be issued by the competent authority to remove the buildings/structures on the land in the event of resumption.

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vi. The Government could resume the land wholly or in part with any building thereon if, in the opinion of the Government, the land was required for public purpose or for conducting mining operations. In the event of such resumption for any reason, the compensation payable for the land and trees shall, in no case exceed the amount paid for them by the grantee or their value at the time of resumption or acquisition whichever could be less, if the land was not to be alienated without the previous permission of the Deputy Commissioner, Bellary.

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vii. The Government would have the liberty/right to resume the land and re-enter on it and the whole land would thereupon vest absolutely in the Government. In case of violation of the terms and conditions of the grant, the grantee would not be entitled to any compensation whatsoever.

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In terms of Condition No.10 of the grant, the respondent-Company sought permission to mortgage the entire land of 75 acres. By the order dated 30.11.1963, permission was granted by the erstwhile State of Mysore

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for mortgaging the land to the Canara Industrial and Banking Syndicate Limited, Udupi (Now, Canara Bank) for raising loan of Rs.20,00,000/- for establishment of spinning mill. The mortgage of the land was with respect to only whatever the limited rights the respondentCompany had over the land in pursuance to the grant dated 16.01.1963.

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The permission for mortgage of 75 acres of land in Sy.No.597/B-1 A2-B4 of Bellary Village, inter alia , reads as under:

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"1.The Government of Mysore in their order second cited above, have sanctioned the alienation and grant of 75-00 acres of land in S.No. 597 B1-A2B4A of Bellary Village in favour of the Bellary Spinning and Weaving Company Ltd., Bellary at an upset price of Rs. 500/- per acre Sub-Division Fee of Rs. 3/- and annual ground rent of Rs. 6-25 Np. s. acre for the construction of a Spinning and Weaving Mill. The land was handed over possession by the Thasildar, Bellary on 28.1.1963 to the said company.

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2. The Chairman, Board of Directors of the said Company in his letter first cited above has applied for permission to mortgage without possession the land

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alongwith the fixed assets of the Company with the Canara Industrial and Banking Syndicate Ltd., Udupi, for raising a loan of Rs. 20 (Twenty) lakhs for the establishment of the Spinning Mill."

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Thus, it is evident that the limited rights of the respondent - Company over the land were allowed to be mortgaged for raising a loan of Rs.20,00,000/-.

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HISTORY OF THE LITIGATION:

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The respondent-Company could not discharge its loan liabilities. The Registrar of Companies, by the communication dated 12.03.1986, called upon the Canara Bank (Canara Bank/Syndicate Bank) to initiate proceedings to wind up the respondent-Company failing which, the Registrar of Companies would initiate winding up proceedings. A reminder dated 12.06.1986 was sent by the Registrar of Companies to Canara Bank.

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On 23.11.1984, the Deputy Commissioner issued a notice to the Company, proposing to resume the land on the ground that the Company had violated various conditions of the grant. The Canara Bank (Syndicate

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Bank), on 27.06.1986, moved this Court by filing Company Petition No.34/1986 for winding up of the respondent - Company and on 03.07.1986, the petition for winding up was admitted. On 24.09.1986, the State Government issued a show cause notice to the respondent-Company in continuation of the notice dated 23.11.1984 as to why 50 acres, out of 75 acres of land which was granted to the Company should not be resumed on the ground that 50 acres had remained unused by the Company and it had availed loan over and above Rs.20,00,000/-, but no permission was granted for availing the loan over and above Rs.20,00,000/- by mortgaging the land granted to the respondent-Company. The second notice was issued on account of administrative re-organisation of the State, and the second notice was in continuation of the earlier notice dated 23.11.1984.

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The second respondent-Bank filed the reply on 27.11.1986 to the show cause notice dated 24.09.1986 issued by the Divisional Commissioner. The Company Court passed the order of winding up of the Respondent-

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Company on 19.10.1987 and the Official Liquidator was appointed. The State Government filed an application being Company Application No.1036/1996 on 01.07.1996

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in Company Petition No.34/1986 seeking permission to continue the proceedings for resuming 50 acres of land. It is important to note that the respondent-Bank filed Company Application No.1035/1996, almost after 10 years from the date of the second notice of resumption dated 24.09.1986 and 12 years from the first notice of presumption dated 24.11.1984 to set aside the notice dated 24.09.1986 issued by the Divisional Commissioner to resume the land. The Canara Bank (Syndicate Bank) moved Company Application No.75/1987 in Company Petition No.34/1986 seeking stay of the proceedings for resumption. The learned Company Judge stayed the resumption proceedings.

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The learned Company Judge, vide order dated 03.11.1998, set aside the show cause notice dated 24.09.1986 issued by the Divisional Commissioner for resuming land. Being aggrieved by the said order dated

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03.11.1998 passed by the learned Company Court in Company Application Nos.1035/1996 and 1036/1996 in Company Petition No.34/1986 whereby the learned

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Company Court, set aside the show cause notice on 24.09.1986 and the State had filed present Original Side Appeal (OSA) No.9/1999. The said OSA came to be allowed on 06.09.2007 by the learned Division Bench. The learned Division Bench directed the State to initiate the proceedings to resume entire extent of 75 acres of land granted to the respondent - Company. The Respondent - Canara Bank challenged the said judgment dated 06.09.2007 passed by the learned Division Bench in OSA No.9/1999 before the Supreme Court in SLP No.23723/2007 (Civil Appeal No.2936/2023).

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JUDGMENT OF SUPREME COURT IN APPEAL:

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The Supreme Court has allowed the Civil Appeal and set aside the judgment of the Division Bench vide judgment dated 19.04.2023. The Supreme Court has been of the view that the finding recorded by the Division Bench that the permission sought by the Company to

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mortgage the land and the permission accorded by the State Government to do so were in contravention of the conditions of grant, therefore, the permission granted to mortgage the land was void, incorrect and erroneous.

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The Supreme Court has further observed that the Division Bench ought not to have gone into the validity and legality of the permission for mortgaging the land. The Supreme Court has also set aside the direction issued by the Division Bench for continuation of the proceedings for resumption of the entire extent of the land and the direction to issue fresh notices for resumption of remaining extent of land by way of corrigendum or correction and not only to the extent of 50 acres of land.

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Paragraphs 18 and 20 of the judgment passed by the Supreme Court in Civil Appeal No.2936/2023 are extracted hereunder:

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"18) The question which would remain is, having set aside the findings which persuaded the Division Bench to interfere with the order passed by the Company Judge as to what is

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the nature of the Grant; whether the Grant is an alienation in the sense of a sale; whether the power of resumption which vested with the respondent-State continued; what are the conditions subject to which the said power would continue to be available to the Grantor; whether the fact that winding up petition had been filed and having regard to the terms of the order of the winding up also, whether it would be open to the appellant to contend that the power of resumption has come to an end; whether an auction purchaser of the land in an auction, if conducted by Official Liquidator would acquire a right in land which would extricate him from the power of the Grantor to resume the land. We would think that these questions must now be gone into by the Division Bench as we have interfered with the substantial premise of the order of the Division Bench as we have noted.

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20) In such circumstances, the appeal is allowed partly. The impugned order is set aside. The matter is remanded to the Division Bench. We request the Division Bench to dispose of the matter as early as possible as we are informed that as of today, the original

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loan of Rs.20 lakhs has snowballed into nearly Rs.1,500 crores."

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Thus, on remand by the Supreme Court, we have heard the appeal. Having set out the facts, we would now take note of the orders and judgments passed by this Court in respect of the respondent - Company and the land in question.

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As stated that the Syndicate Bank (Now, Canara Bank) had filed the Company Petition No.34/1996 under Section 433(e) read with Section 434 of the Companies Act, 1956. As per the respondent - Bank, the Company had availed financial accommodation under loan agreement to the tune of Rs.36,24,000/. On the date of filing of the winding up petition, the liability of the Company to the Bank exceeded Rs.3 crores besides the future interest.

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The undisputed liability of the Company was above Rs.2 crores. The dispute was in respect of the rate of interest. The learned Company Judge, in the winding up

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order/judgment dated 19.10.1987/06.11.1987 passed in Company Petition No.34/1986, had noted that 75 acres of land given in grant to the Company did not vest in the Company. These lands were granted by the State Government under certain conditions mentioned in the order of grant and for that reason, the Company had to take permission of the State Government for mortgaging these lands to the Bank.

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The Company Judge also took note of the

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Government's power to resume the land wholly or in part with any building thereon, if in the opinion of the Government, some of the land was required for a public

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purpose or for conducting mining operations. The learned Company Judge, having considered the terms and conditions of the grant made in favour of the Company, held that the security furnished by the Company could not be a sufficient security which the Bank could enforce at later date. In paragraph-11 of Judgment and Order dated 19.10.1987/06.11.1987 in Company Petition No.34/1986, it was held as follows:

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"11. In the light of these provisions in terms of the grant made in favour of the Company the security furnished by it cannot be treated as sufficient security which the Bank could enforce at a later date. The Company having failed to establish that it has an absolute title to the lands in question, it cannot depend on the slender security offered by it to avoid an order of winding up by this Court. Even otherwise, I have come to the conclusion that it is a fit case for winding up under Section 433 (c), (e) & (f) of the Act and it is well-settled that this Court has the power to order winding up on anyone of the grounds under section 433 or on all the grounds mentioned therein. Two of the creditors who have filed separate petitions in CO.P. No. 13/87 and 39/87 have also supported the order of winding up. The other creditors of respondent have not come forward to oppose the order of winding up."

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Thus, it was categorically held by the learned Company Judge that the Company did not have an absolute title over the land in question and the land given in grant did not vest in the Company. The Government had all the powers to resume the land for public purpose or for conducting mining operations or in the event of the violation of the terms and conditions of the grant.

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The aforesaid findings were never challenged by the respondent - Bank and became final.

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The learned Company Judge while dealing with the various applications filed by the Bank against resumption proceedings for resuming the land given to the Company on grant and Company Application No.1036/1996 by the State seeking permission to continue the proceedings for resuming the land and Company Application No.1035/1996 filed by the Bank to set aside the notice dated 24.09.1986 issued by the Divisional Commissioner for resuming the land filed in Company Petition No.34/1986, could be decided vide impugned order dated 03.11.1998, almost after 10 years of the order of winding up was passed by the Company Judge.

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The learned Company Judge in the order dated 03.11.1998 noted the fact that the proceedings of resumption had been commenced on 24.11.1984 and the show cause notice dated 24.09.1986 refers to the earlier notice dated 24.11.1984. However, it was concluded that

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the notice dated 24.09.1986 was a fresh show cause notice, whereby the Divisional Commissioner had commenced the proceedings. It was further held that if the resumption proceedings were not competent, then, it was not open to the State at that point of time to apply to the Court for continuation of those proceedings. Further, the findings were recorded that the permission granted to the Company to mortgage the land was a blanket permission, in respect of the whole of the land of 75 acres inasmuch as the reading of the order dated 30.11.1963 would not really put any limitations on the Bank or the Company that if the loans were to be renewed or extended or increased, the fresh permission would be required. If the Government had permitted the mortgage of the land, the consequence would follow insofar as the rights had been created in favour of the Bank vis-a-vis the land. It was also held that even if the Government had the power to continue the resumption proceedings, it would be subject to whatever rights the bank was claiming vis-a-vis that land as the substantial sum of money was advanced by it against the

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land which was mortgaged by the Company in favour of the Bank.

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In view of the aforesaid, the learned Company Judge held that the resumption proceedings were not competent and the Official Liquidator under the over all supervision of the Court was permitted to advertise for the alienation of the land in question. It should be done specifying that the party who would take the land would be doing so in the same capacity as the original Company. The auction purchaser would be in possession and use of the land and building pertaining thereon and that would be subject to the other terms and conditions under which the Company

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held the land and the State would continue to be represented in those proceedings until the disposal of the land would get completed.

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The State filed the present O.S.A.No.9/1999 being aggrieved by the common judgment dated 03.11.1998 passed by the learned Company Judge in Company Application Nos.1035 and 1036 of 1996, 481/1998 and

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75/1987. The Division Bench, vide the judgment and order dated 06.09.2007, had set aside the judgment dated 03.11.1998 passed by the learned Company Judge in Company Application Nos.1035 and 1036/1996, 481/1998 and 75/1987 and liberty was granted to the State to proceed with the resumption of the entire extent of land.

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This judgment of the Division Bench was the subject matter of challenge in Civil Appeal No.2936/2023 before the Supreme Court. The Supreme Court, after setting aside the judgment of the Division Bench, has remanded the matter back for disposal as mentioned hereinabove.

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The Supreme Court, in Paragraphs 18 and 19 of its Judgment dated 19.04.2023 passed in Civil Appeal No.2936/2023, has framed the following questions to be

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considered by this Court:

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i. what is the nature of the grant;

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ii. whether the grant is an alienation in the sense of a sale;

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iii. whether the power of resumption which vested with the State would continue after the

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mortgage of the land by the company in favour of the respondent bank;

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iv. what are the conditions subject to which the said power of resumption would continue to be available to the grantor;

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v. whether the fact that the winding up the petition has been filed and having in regard to the terms of the order of the winding up also, whether it would be open to the respondent bank/Official Liquidator to contend that the power of resumption has come to an end;

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vi. whether an auction purchaser of the land in an auction, if conducted by an Official Liquidator would acquire a right in land which would extricate him from the power of the grantor to resume the land;

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vii. whether there was no justification for the State Government to undertake resumption of land.

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SUBMISSIONS ON BEHALF OF THE APPELLANTS:

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In response to question Nos.i and ii, learned Additional Advocate General for the State would submit that if the terms and conditions of the grant dated 16.01.1963 are considered, it would be clearly evident

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without any ambiguity that it was not a sale or alienation

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of the land in favour of the grantee. The general and special conditions of the grant and the permission dated 30.11.1963 of the Deputy Commissioner, Bellary in favour of the Company to mortgage the land would clearly indicate that what was permitted to be mortgaged was the limited rights of the grantee under the grant, to avail the loan. The power of resumption, the annual ground rent of Rs.6.25 per acre would also clearly indicate that it was not an alienation of the land in favour of the respondentCompany, but limited rights were given over the land regarding its use, etc., to the respondent-Company. The alienation of the property would mean transfer of all rights over the property by the transferer in favour of the transferee.

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The submission is that on the basis of the grant dated 16.01.1963, the respondent - Company got limited rights of use of the land, subject to the terms and conditions of the grant, and it was not a transfer of the land under the Transfer of Property Act, 1882 or

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alienation. It was not a sale of the land in favour of the Company by the State.

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In respect of question Nos.iii, iv, v and vii, the learned Additional Advocate General has submitted that the permission dated 30.11.1963 by the Deputy Commissioner, Bellary to mortgage the land would suggest that the permission was granted to mortgage the land along with the fixed assets of the Company to the Canara Industrial and Banking Syndicate Limited raising a loan of Rs.20,00,000/- without possession. It was also made clear that the mortgage would be only in respect of the limited rights and title, the respondent - Company would possess over the land under the general and special conditions of the grant.

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The contents of the grant as well as the terms and conditions of the permission dated 30.11.1963 are not in dispute. The permission dated 30.11.1963 was issued in furtherance of Clause-10 of the General and Special Terms and Conditions of the grant. The Bank fully knew that the

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Company possessed limited rights on the land and building constructed over it. The Company did not have a right to part with the possession of the land. The amount was also mentioned in the permission order dated 30.11.1963.

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The Bank having fully known about the right of the State to resume the land and permission for mortgage of the limited right of the Company over the land and the fixture, cannot contend that the State would not have the

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power to resume the land when the Company is not in a position to carry out the object for which the land was allotted, and it had violated the terms and conditions of the grant. There is no dispute regarding the violation or breach of the terms and conditions of the grant. The initial notice was issued for resumption of the land on 24.11.1984 and while the said notice was pending, a second notice in continuation of the first notice was issued on 24.09.1986, and therefore, the second notice was not

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barred as it was a continuation of the first notice. Therefore, the admission of the company petition was of no consequence to hold that the second notice was barred

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inasmuch as the second notice was nothing but a continuation of the earlier notice.

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The learned Additional Advocate General has further submitted that the Company was granted 75 acres under the Grant dated 16.01.1963, but it could utilize only 25 acres of land and 50 acres of land was not utilized for any development or for the purpose of the spinning mill. The Company had grown coconut trees illegally on 5 acres of land for which the Company had failed to pay the annual ground rent for the last 23/25 years. The Company had put up construction arbitrarily without permission of the Deputy Commissioner and had availed the loans without

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the permission of the Deputy Commissioner over and above the loan of Rs.20,00,000/- for which the permission was granted. Rs.20,00,000/- had grown up to the extent of Rs.2.37 crores and had further grown up to an astronomical figure which is evident from the letter dated 27.11.1996. As the Company had breached the terms and conditions of the grant and the land is required for the public purposes, the State is well within the power to

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resume the entire land notwithstanding the institution of the company petition. The show cause notice issued for the resumption of the land and cancellation of the grant would not come within the mischief of Section 446 of the Companies Act, 1956.

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The Company Judge, in the judgment and order dated 19.10.1987 and 06.11.1987 in Company Petition No.34/1986, had held that the Company did not have the ownership or title of the land in question. The order of winding up would not extinguish the power of resumption of the State and would also not obliterate or wipe out the terms and conditions of the grant under which the land was granted to the respondent-Company. The mortgagee/ transferee cannot have better right, title and interest than the mortgager/transferor. The mortgage was only permitted in respect of the limited rights of the Company, and therefore, the Bank cannot claim better right, title or interest than the Company over the land in question.

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The Government had issued the first show cause notice way back on 24.11.1984, and the Company had replied to the said notice, which is evident from the order dated 03.11.1998 passed by the Company Judge. The said notice was issued 3 months prior to the institution of the Company Petition No.34/1986 and the second show cause notice dated 24.09.1986 was nothing but an extension of the first show cause notice in view of the change in jurisdiction of the officials due to administrative re-organisation of the State. Even otherwise, under Section 537 of the Companies Act, 1956, requirement of taking permission would not arise.

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With the order of winding up, the possession of the land, has automatically vested with the State Government. The Official Liquidator has no power to prevent the grantor to take back the possession of the grant when specifically the premises or the property or properties are no longer being used by the Company for the purposes for which the grant was conferred in favour of the grantee.

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Regarding the question No.vi, it has been submitted that the auction purchaser would merely step into the shoes of the respondent - Company, and he would have only limited right as that were conferred over the land under the grant and its terms and conditions in favour of the respondent-company.

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It is further submitted that the land cannot be put to an auction, as the land has reverted back and vested in the State, in view of the breach of terms and conditions of the grant and the purpose for the grant having come to an end. Therefore, there is no question of permitting the bank to put the land for auction sale.

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In view of the aforesaid submission, it has been submitted that the writ petition or the appeal is to be allowed and the impugned order passed by the learned Company Judge setting aside the resumption notices and refusing the permission is to be set aside.

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SUBMISSIONS ON BEHALF OF THE RESPONDENTS

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Learned Senior Counsel appearing for respondent No.2-Bank, in response to question Nos.i and ii, submits

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that by proceedings dated 16.01.1963, the Government of Mysore sanctioned the alienation of 75 acres of land in Sy.No.597 B.1, A2.B4 of Bellary Town in favour of Bellary Spinning and Weaving Company Limited at an upset price of Rs.500/- per acre, sub-division fee of Rs.3/- and annual ground rent of Rs.6.25 per acre. The subject land is situated in Bellary District, which area was merged with the erstwhile Mysore State in the year 1953. Section 1(2) of the (Government) Grants Act, 1895, provides that it extends to the whole of India except the territories formed immediately before 01.11.1956 comprised in Part B States. The State of Mysore was one of the States within the meaning of Section 1(2) of the (Government) Grants Act, 1895, and therefore, the provisions of the (Government) Grants Act, 1895, would not apply to the State of Mysore. It was only in the year 1973 that the

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(Government) Grants Act came to be made applicable to the State of Karnataka (successor of the State of Mysore).

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As the State of Mysore was outside the purview of the provisions of the (Government) Grants Act, the Land Grant (Madras Area and Bellary District) Rules, 1960 would be applicable to the grant. The grant in favour of the respondent-Company vide proceedings dated 16.01.1963 can be traceable to Rule 3(4) of the Land Grant (Madras Area and Bellary District) Rules, 1960.

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It is further submitted that as per Section 3(19) of the Mysore Land Revenue Code, 1888, "alienated" means transfer insofar as the rights of Government to payment of rent or land revenue are concerned, wholly or partially, to the ownership of any person. By the grant order dated 16.01.1963, the Government of Mysore had sanctioned the alienation of land in favour of the respondentCompany. He further submits that this alienation would get fortified by the order of the Deputy Commissioner dated 30.11.1963 permitting the respondent-Company to

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mortgage the land measuring 75 acres for obtaining the loan of Rs.20 lakhs. It is further submitted that as per the grant order, upset price of Rs.500/- per acre has to be paid by the respondent-Company to the Government and "upset price" in the grant order would mean that the grant was in the nature of sale. The submission is that the Government has alienated 75 acres of land in favour of the respondent-Company which amounts to sale in favour of the respondent-Company.

¶186

The learned Senior Counsel, in response to question Nos.iii, iv and vii, has submitted that the power of resumption under the grant had come to an end by the order of the Deputy Commissioner dated 30.11.1963 whereby, the respondent-Company was permitted to mortgage the land measuring 75 acres for obtaining loan of Rs.20 lakhs. It is the submission that to construe the

¶187

power of resumption in any other manner for mortgaging the land in favour of the Bank to take the loan would render the permission granted under Clause-10 redundant. It is also submitted that the power of resumption has not

¶188

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been exercised within a reasonable time and would not continue on the ground of delay and laches. It is further submitted that the resumption proceedings could not have been initiated in view of the provisions of Section 446(1) of the Companies Act, 1956. The Company Petition having been presented on 27.06.1986, and the Company having been wound up, the proceedings relate back to the date of presentation of the petition i.e., 27.06.1986 as provided under Section 441(2) of the Companies Act, 1956. Therefore, the resumption could not have been initiated without the leave of the Company Court in view of the mandatory provisions contained in Section 446(1) of the Companies Act, and therefore, the initiation of the resumption proceedings was wholly without jurisdiction.

¶191

In response of question No.v, the learned Senior Counsel appearing for the respondent-Bank has submitted that the observations of the learned Company Judge in paragraphs 10 and 11 of the winding up order dated 19.10.1987 were only for the purpose of declaring the insolvency of the respondent-Company, and its inability to

¶192

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pay its debts to the respondent-Bank. Under these circumstances, the security was described as slender security by the learned Company Judge. The observations in paragraphs 10 and 11 of the winding up order dated 19.10.1987 would not have any material bearing on the issues raised in the present proceedings.

¶195

In response to question No.vi, it is submitted that the grant was in the nature of sale and the State Government could not have any right to resume the land. The auction purchaser would acquire title of the land and the grantor would not have the power to resume the land.

¶196

The learned counsel for respondent No.1-Official Liquidator has submitted that besides the claim of the Bank, which was for Rs.94,79,05,438/-, the other claims of the secured creditors have been admitted for Rs.2,20,69,257/-. The summary of claims of the secured creditors has been presented before this Court in the memo dated 06.08.2025, which is extracted hereunder:

¶197

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¶199

" Summary of Claims

¶200

Sl. No.	Name of the Claimants	No. of Claims	Amount Claimed (in Rs)	Amount Admitted (in Rs)	Amount Rejected (in Rs)
1	EPFO	1	9,64,872	9,64,872
2	Syndicate Bank	1	94,79,05,438	Adjudication pending*
3	Workmen	537	1,04,09,050	76,80,882	27,28,168
4	Department of Commercial Taxes	1	5,93,36,736	93,99,313	4,99,37,423
5	Textile Committee	1	23,414	23,414
6	Cotton Corporation of India	1	43,03,095	Adjudication pending**
7	Depositor/Advance	1	4,50,000	4,50,000
8	GESCOM	1	10,70,000	10,70,000
9	Sri. Mahadevappa	1	2,01,225	2,01,225
10	Employee State Insurance Corporation	1	22,79,551	22,79,551
		546	102,69,43,381	2,20,69,257	5,26,65,591

¶201

The Claim is filed in the form of letter and not by way of Affidavit in Form 66.

¶202

**The Claim has not been adjudicated as Form 66 is filed after due date of adjudication of claim."

¶203

In pursuance to the order passed in the winding up proceedings, the Official Liquidator has taken over the possession of the assets of the respondent-Company. However, further proceedings for alienation of the assets

¶204

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of the respondent-Company have not been undertaken to liquidate the assets of the Company for satisfying the debts/liabilities of the secured and unsecured creditors. He has supported the submission of the respondent-Bank to some extent.

¶207

We have considered the submissions and perused the record as well as the judgment of the Supreme Court in Civil Appeal No.2936 of 2023.

¶208

STATUTORY PRESCRIPTION:

¶209

Section 2 of the (Government) Grants Act, 1895, specifically provides that the provisions of the Transfer of Property Act, 1882, would not apply to any grant or other transfer of land or any interest therein made by the Government in favour of any person whomsoever. Section 3 of the (Government) Grants Act, 1895, provides that all provisions, restrictions, conditions and limitations contained in any such grant or transfer shall be valid notwithstanding any rule of law, statute or enactment of the Legislature to the contrary.

¶210

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Thus, under the (Government) Grants Act, what would be relevant is the terms, conditions, restrictions, limitations etc., which are part of the grant or transfer by the Government in favour of a person. Neither the provisions of the Transfer of Property Act, 1882, or any other Rule, statute or enactment would have any application while construing the rights, liability, power etc., in respect of the grant.

¶213

The provisions of the (Government) Grants Act were not applicable to the areas which were comprised in Part B States formed immediately before 01.11.1956. The State of Mysore was a Part B State. It is vide Gazette Notification dated 14.06.1973, the Government Grants (Karnataka Extension) Act, 1972 and the provisions of the (Government) Grants Act, 1895, were extended to the whole of the Karnataka (the successor of the State of Mysore).

¶214

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The question which requires consideration before this

¶217

Court is what are the relevant provisions of law under which the grant dated 16.01.1963 in respect of 75 acres of

¶218

land was issued in favour of the respondent-Company.

¶219

The Rules framed under the Mysore Land Revenue Code, 1888 particularly, Rule 42 would confer powers on different Revenue Officers in respect of grant of the lands of the State. Sub-rules (1) (2) and (3) of Rule 42 empowers the different Officers, the extent of land which can be granted by these Officers for agricultural purposes. The sub-rules, however, provide that no grant of land shall be made by the Deputy Commissioner or other Officer in excess of the extent prescribed except with the previous sanction of the Government.

¶220

Rule 43-L deals with the power of the Government and that Rule says "notwithstanding anything contained in the preceding rules, the Government may suo motu or on the recommendation of the Divisional Commissioner or the Deputy Commissioner if it is of the opinion that in the

¶221

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circumstances of any case, it is just and reasonable to relax any of the provisions under which the land may be granted under these Rules, it may by order direct such relaxation subject to such conditions as may be specified in the order, and thereupon land may be granted in such a case in accordance with such direction."

¶224

Rule 43 of the Mysore Land Revenue Rules framed under Section 233 of the Mysore Land Revenue Code, 1888, would prescribe that all lands shall ordinarily be sold by public auction after observing the prescribed formalities. However, the discretion was given to the Deputy Commissioner in special cases to grant any occupancy right at an upset price to any bona fide applicant who is an agriculturist or who was an agriculturist or who is proposed to cultivate the land himself. If the Deputy Commissioner was satisfied that in

¶225

the event public auction will help, advantage would be taken of the needs of the applicant to force up the price. The lands so granted, however, would not exceed 20 acres in extent or Rs.400/- in value.

¶226

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50. Rule 43 reads as under:

¶229

"43. Procedure for disposal of lands for cultivation.- (1) Applications for grant of lands under the control of the Reserve Department shall be made to the Tahsildar of the taluk in which the land applied for is situated. It shall be in writing and shall contain the following particulars.-

¶230

(i) The name and address of the applicant;

¶231

(ii) The extent of land, if any, already owned by him or his family if he is a member of a joint family;

¶232

(iii) The particulars of the land applied for;

¶233

(iv) And whether he belongs to a Scheduled Caste or a Scheduled Tribe or is a Political Sufferer or displaced holder or tenant.

¶234

Applications presented to other authorities shall be forwarded by them to the Tahsildar.

¶235

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(2) The Tahsildar shall immediately on receipt of an application ascertain if the land in question is available for grant and is under the control of the Revenue Department.

¶238

(3) If the land applied for is not available for disposal the application shall be rejected under intimation to the applicant provided that where the land applied for is Government land but is not under the control of the Revenue Department, and the Tahsildar is of the opinion that such land could be released for cultivation, he shall make a report to the Deputy Commissioner who shall, if necessary take appropriate action to get such land released for disposal.

¶239

(4) All applications for grant of land under these rules shall be registered in the order in which they are received in a register which shall be maintained in the Taluk Office."

¶240

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It may also be relevant to note that Rule 11(e) of the Mysore Land Revenue Rules authorises the Government to grant the land at reduced upset price for any parties unconnected with the agriculture.

¶243

From the tenor and contents of the Mysore Land Revenue Rules, it is evident that the Rules contemplated two types of grants of land (1) for agricultural purposes; and (2) for other purposes. Agricultural purposes contemplated are those connected with tilling, cultivating and raising crops. Grant of land for setting up a spinning mill could not be considered as agricultural purposes and therefore, the grant dated 16.01.1963 was within the power of the Government under Rule 11(e) of the Mysore Land Revenue Rules.

¶244

If the power of the Government to dispose of the land vested in it is not taken away or restricted or regulated by any statute or statutory rules, it must be held to have that power as executive power of the State.

¶245

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As the grant was not made for the agricultural purposes, the grant dated 16.01.1963 would relate to the Government's power under Rule 11(e) of the Mysore Land

¶248

Revenue Rules. The High Court of Mysore in MUDDIAH

¶249

AND ANOTHER VS STATE OF MYSORE AND ANOTHER

¶250

(ILR 1966 MYS 314) held that the grant other than for agricultural purposes could be grant under Rule 11(e), and even if it is held that the grant would not fall within the scope of Rule 11(e) of the Mysore Land Revenue Rules, the same could, in substance, if not in form, would have been made under Rule 42(4) of the Mysore Land Revenue Rules.

¶251

We have not been shown any provisions or enactment or the Rule which limited the power of the State Government of Mysore to confer the grant on the respondent-Company in respect of 75 acres vide proceedings dated 16.01.1963.

¶252

ANALYSIS AND CONCLUSION:

¶253

Re: Question Nos.i and ii: Even the Land Grant (Madras Area and Bellary District) Rules, 1960, on which

¶254

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the learned Senior Counsel appearing for respondent No.2Bank has placed reliance are pari materia to the Rules made under the Mysore Land Revenue Code, 1888 which have been noted above. Under the Land Grant (Madras Area and Bellary District) Rules, the powers of different Revenue Officers in respect of grant of lands are prescribed in Rule 3. The Deputy Commissioner would have the power under sub-rule (3)(i) of the said Rules to grant land not exceeding five acres of land fit for garden, cultivation or wet land with assured irrigation facilities from tanks or channels or ten acres of other kinds of wet land or ten acres of dry land. The powers conferred under Rule 3 are in respect of the grant of land on different officers which is for the agricultural purpose. The grant of land to certain categories of persons and institutions could

¶257

be traceable to Rule 8. Rule 8(3) is in respect of grant of land by the Deputy Commissioners to Schools, Colleges, Training Institutions for Social Welfare Workers, Students' Hostels etc., as well as to the University. Even under Rule 8(3), ten acres of wet land or twenty-five acres of dry or

¶258

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rain-fed wet land could be granted for the educational institutions by the Deputy Commissioner and in excess of ten acres could be granted only with the previous sanction

¶261

of the Government.

¶262

Rule 16 of the Land Grant (Madras Area and Bellary District) Rules, 1960, would confer the powers on the Government, which reads as under:

¶263

" 16. Powers of Government. - Notwithstanding anything contained in the preceding rules the Government may suo motu or on the recommendation of the Divisional Commissioner or the Deputy Commissioner if it is of the opinion that in the circumstances of any case or classes of cases it is just and reasonable to relax any of the foregoing provisions of these rules, it may by order direct such relaxation subject to such conditions as may be specified in the order and thereupon land may be granted in such a case or class of cases in accordance with such direction."

¶264

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Thus, under Rule 16, the Government would have the power notwithstanding anything contained in the said Rules either on suo motu or on the recommendation of the Divisional Commissioner or the Deputy Commissioner for relaxing any of the provisions of the said Rules to grant the land in favour of a person or classes of persons in accordance with the said direction. Rule 16 is pari materia to Rule 43-L of the Mysore Land Revenue Code, 1888.

¶267

Having considered the relevant provisions of the Mysore Land Revenue Code and the Land Grant (Madras Area and Bellary District) Rules, we are of the opinion that there was no limitation on the power of the State Government of Mysore to confer the grant on the respondent-Company in respect of 75 acres of land vide proceedings dated 16.01.1963.

¶268

The nature of grant of 75 acres of land in favour of the respondent-Company has to be deciphered from the contents of the order dated 16.01.1963. The terms and conditions of the grant would clearly demonstrate that the

¶269

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land was granted to the respondent-Company for a specific purpose, and it was not an alienation of ownership of the land in favour of the respondent-Company by the State. The ownership of the land remained vested in the Government and certain rights over the said land were given to the respondent-Company with certain mandatory conditions for the specific purpose of setting up of the spinning mill. The State Government would always have the right to resume the land either on the ground of violation of the terms and conditions of the grant or for public purposes or on both grounds. Therefore, we do not agree with the submission of Mr. Dhyan Chinnappa, learned Senior Counsel for respondent No.2-Bank that it was a sale by the Government in favour of the respondent-Company. The sale would confer all rights over the land, however, in the present case, only limited rights, that too, subject to the terms and conditions of the grant were conferred on the respondent-Company. The State Government never parted with the ownership right in favour of the respondent-Company.

¶272

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As the grant was made in exercise of Rule 43-L of the Mysore Land Revenue Code, 1888, or Rule 16 of the Land Grant (Madras Area and Bellary District) Rules, 1960, the terms and conditions of the grant are integral part of the grant and therefore, the nature of the grant has to be adjudged by construing the terms and conditions of the grant which would clearly show that by the grant, limited rights were conferred on the respondent-Company and there was no transfer of the ownership of the land in favour of the respondent-Company.

¶275

It is well settled that the Transfer of Property Act, 1882, is not applicable to such Government grants of the land and only limited rights are transferred under the grant over the property in favour of the grantee by the Government, subject to the terms and conditions of the grant. The respondent-Company cannot claim absolute ownership of the land inasmuch as the same was not the intent and purpose of the grant, which is evident from the terms and conditions of the grant. When it is always open to the Government to resume the land held on grant terms

¶276

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either on violation of the terms and conditions of the grant or for public purposes or on both, it cannot be said that the land was alienated by sale in favour of the respondent-

¶279

Company. Thus, we answer question Nos.i and ii accordingly.

¶280

Re: Question Nos.iii, iv and vii: The rights of the grantee are to be determined in a Government grant from the instrument of the grant. As discussed above, the land was granted in favour of the respondent-Company for setting up of a spinning and weaving mill by exercising the powers vested in the Government either under Rule 43-L of the Mysore Land Revenue Code, 1888 or under Rule 16 of the Land Grant (Madras Area and Bellary District) Rules,

¶281

The grant would be outside the purview of the other Rules and therefore, it would be required to construe the terms and conditions of the grant to determine whether the Government would continue to have the power of resumption.

¶282

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The terms and conditions of the grant are very specific and categorical in the sense that on certain contingency and breach committed by the grantee, the Government would have the power to resume the land granted in favour of the respondent-Company. It is not in dispute that the respondent-Company had breached the terms and conditions of the grant by not paying the annual rent etc., and now the Company is not using the land for the purpose for which it was granted.

¶285

There is no restriction or time limit prescribed under the terms and conditions of the grant to the Government to exercise its option of resumption of the land. When the respondent-Company is in default and breached the terms and conditions of the grant and the very purpose for which the grant was made in favour of the respondent-Company is no longer in existence, it would be well within the power

¶286

of the State Government to resume the land. We are of the opinion that the Government was well within its power to resume the land, at any time, if it was required for public purposes or there was violation of the terms and

¶287

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conditions of the grant or the very purpose for which the land was granted no longer exists. It is not the case of the respondent-Company or the Bank that the land is not

¶290

required for the public purposes or the respondentCompany has not breached the terms and conditions of the grant. Thus, we answer question Nos.iii, iv and vii accordingly.

¶291

Re: Question No.v: In the winding up order dated 19.10.1987 read with the order dated 06.11.1987 passed in Company Petition No.34/1986 c/w Company Petition Nos.13 & 39/1987, the learned Company Judge, in paragraph 10, specifically held that the land of 75 acres granted by the Government vide grant dated 16.01.1963 did not vest in the respondent-Company. These lands were granted by the State Government under certain conditions, more particularly mentioned in the order of grant and for that reason, the respondent-Company had to take permission of the Government for mortgaging its land to the Bank which would be evident from the grant itself.

¶292

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Paragraph 10 of the said judgment is extracted

¶295

hereunder:-

¶296

"10. However, one contention which requires some consideration by this Court is the submission that the outstanding loans due from the Company are fully secured by the mortgage of immovable properties measuring about 75 acres and odd as noticed earlier. These lands do not vest in the Company absolutely. This is evident from Annexures-A1, A2 and A3 filed by the petitioner. These lands were granted by the State Government under certain conditions more particularly mentioned in the order of grant. That is the reason that the company had to take the permission of the State Government for mortgaging these lands to the petitioner-Bank, as is evident from Annexure A1 filed in the writ petition. The Government has imposed certain special conditions for the alienation of these lands. Under clause-IV, "the Government may resume the land wholly or in part, with any buildings thereon if in the opinion of the Government the land is required for a public purpose or for conducting mining operations. In the event of such resumption or in the event of

¶297

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the acquisition of the land for any reason, the compensation payable for the land and trees shall in no case exceed the amount paid for them by the grantee or their value at the time of resumption or acquisition whichever may be less…the event of resumption under condition…on the land the Government shall either purchase them or direct the grantee to remove them."

¶300

The said judgment has become final. Even otherwise, the respondent-Company was granted limited rights over the lands by the grant by imposing certain specific restrictions and conditions as mentioned in the terms and conditions of the grant, and it was not transfer of the ownership of the land in favour of the grantee i.e., respondent-Company. Once in the winding up order itself, it has been held that the land vests in the Government and what was transferred under the Grant was only limited rights for use of the land for the purposes of setting up of spinning mill, it would not be open to the respondentCompany or the respondent-Bank to contend that the respondent-Company became the true owner of the land.

¶301

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Disputing and unsettling such conditions would be absolutely incorrect and against the findings of the learned Company Judge recorded in the winding up order mentioned above. We, therefore, answer question No.v accordingly.

¶304

Re: Question No.vi: The permission to mortgage the

¶305

land in favour of the respondent-Bank was granted by the Deputy Commissioner vide order dated 30.11.1963. The permission was to mortgage whatever limited rights and title over the land the respondent-Company had. The Government had never waived its right in favour of the respondent-Company of ownership and right of resumption. The respondent-Bank, knowing fully well the only limited right the respondent-Company had in accepting the mortgage, now it is not open to the respondent-Bank to contend at this stage that the grant was complete alienation of all rights of ownership by the State Government in favour of the respondent-Company. The grantee cannot transfer better right and title over the land/property than it has. Therefore, in the event of an

¶306

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auction conducted by the official liquidator, the auction purchaser would get only the limited right as the respondent-Company had over the land under the grant and it would not have the better right, title or interest over the land than the grantee had. The auction purchaser would not be entitled to challenge the terms and conditions of the grant under which the Government is the owner of the land with right of resumption, and therefore, the auction purchaser would not acquire right in the land which would shield him from the power of the grantor/State to resume the land.

¶309

We hold that the Government is the owner of the land and what it transferred in favour of the respondent-

¶310

Company was limited rights over the land for the specific purpose of setting up of spinning mill. The Government would always have the power and right to resume the land. Thus, the Government is entitled to resume the entire 75 acres of land, if it so desires. We do not find any infraction in the resumption notices dated 24.11.1984 or

¶311

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24.09.1986 and we hold that the notice dated 24.09.1986

¶314

is continuation of the notice dated 24.11.1984.

¶315

We, thus, having answered all the questions, allow the appeal and set aside the judgment and order dated 03.11.1998 passed by the learned Company Judge in Company Application Nos.1035/1996, 1036/1996, 481/1998 and 75/1987 in Company Petition No.34/1986.

¶316

No order as to costs.

¶317

Pending IAs, if any, stand dismissed.

¶318

SD/(D K SINGH) JUDGE

¶319

SD/(VENKATESH NAIK T) JUDGE

¶320

RKA/BKV

State of Karnataka v. M/S Bellary Spinning

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State of Karnataka v. M/S Bellary Spinning

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