Karnataka Industrial Area Development Board Vs M/S Kirloskar Aaf Limited

KARNATAKA INDUSTRIAL AREA DEVELOPMENT BOARD A GOVERNMENT OF KARNATAKA UNDERTAKING HAVING ITS OFFICE AT NO.49 4^TH AND 5^TH FLOOR, EAST WING KHANIJA BHAVAN

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RACE COURSE ROAD BENGALURU-560 001 BY ITS CHIEF EXECUTIVE OFFICER AND EXECUTIVE MEMBER

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...APPELLANT

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Digitally signed by RAKSHA Location: High Court of Karnataka

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(BY SRI.BASAVARAJ V. SABARAD, SENIOR COUNSEL FOR SRI. H. L. PRADEEP KUMAR, ADV.,)

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AND:

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M/s. KIRLOSKAR AAF LIMITED (FORMERLY KNOWN AS M/S. KIRLOSKAR SNYDER GENERAL LIMITED)

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A COMPANY INCORPORATED UNDER THE COMAPNIES, ACT 1956,

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HAVING ITS OFFICE AT NO.143-C4 BOMMASANDRA INDUSTRIAL AREA HOSUR ROAD BANGALORE-560 099 REPRESENTED BY ITS VICE PRESIDENT MR. V. T. JAIRAJ

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...RESPONDENT

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(BY SRI.DHANANJAY JOSHI, SENIOR COUNSEL FOR SMT. KAVITHA DAMODARAN, ADV.,)

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THIS WRIT APPEAL IS FILED U/S 4 OF THE KARNATAKA HIGH COURT ACT, PRAYING TO SET ASIDE THE ORDER DATED 03.03.2023 IN WRIT PETITION No.50431/2019 (GM-KIADB) PASSED BY THE LEARNED SINGLE JUDGE AND DISMISS THE WRIT PETITION WITH COSTS OF THE APPELLANT.

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THIS WRIT APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 16.03.2026 AND COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, ANU SIVARAMAN J., PRONOUNCED THE FOLLOWING:

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CORAM: HON'BLE MRS. JUSTICE ANU SIVARAMAN and

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HON'BLE MS. JUSTICE TARA VITASTA GANJU

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CAV JUDGMENT

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(PER: HON'BLE MRS. JUSTICE ANU SIVARAMAN)

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This appeal is filed challenging the Order dated 03.03.2023 passed by the learned Single Judge in Writ Petition No.50431/2019 (GM-KIADB)

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We have heard Shri. Basavaraj V. Sabarad learned senior counsel as instructed by Shri. H.L. Pradeep Kumar, learned advocate appearing for the appellant and Shri. Dhananjay Joshi, learned senior counsel as instructed by Smt. Kavitha Damodaran, learned advocate appearing for the respondent.

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The learned senior counsel appearing for the appellant submits that Plot No.143-C4 (Part), measuring 2.5 acres in Bommasandra Industrial Area, was initially allotted to M/s. Kirloskar Limited by a letter of intent dated 08.04.1991, in exchange for 5 acres at Hosakote Industrial Area, pursuant to the State Level Single Window Clearance Committee meeting dated 02.05.1990. An allotment letter dated 10.05.1991 was thereafter issued in favour of

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M/s.Mysore Kirloskar Limited at a tentative cost of Rs.12,570/- per square meter. On 23.10.1992, M/s. Mysore Kirloskar Limited sought transfer of the allotment to M/s.Kirloskar Snyder General Limited, which the Karnataka Industrial Areas Development Board (KIADB) approved subject to the condition that M/s. Kirloskar Limited retain at least 50% shareholding as approved by the Reserve Bank of India (RBI). Possession was handed over on 18.11.1992 and a lease-cum-sale agreement was executed on 05.08.1993.

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It is further submitted that this condition was violated as M/s Kirloskar Limited failed to maintain the mandated 50% shareholding and a fresh Certificate of Incorporation dated 06.06.1995 was obtained and concealed, indicating restructuring in breach of allotment conditions. It is submitted that there was no privity of contract between the appellant and M/s. Kirloskar AAF Limited. On 05.09.2012, M/s. Kirloskar AAF Limited sought transfer of leasehold rights, while the State Bank of India (SBI), initiated action under the Securitisation and Reconstruction of Financial Assets and Enforcement of

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Security Interest Act, 2002 to auction the property and sought details of dues, upon which, the KIADB by letter dated 14.06.2013, indicated dues of Rs.6,10,04,136/-.

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It is further submitted that the respondent challenged the claim of SBI before the Debt Recovery Tribunal (DRT), Bengaluru, in SA No.194/2011, which was dismissed on 21.10.2013 with costs of Rs.1,00,000/-. Thereafter, the respondent sought execution of the sale agreement and by letter dated 13.08.2014, informed KIADB that the dispute with SBI had been settled. Upon examining the shareholding pattern, KIADB found that the shareholding of the original promoter had fallen below the mandated 50% shareholding, violating the allotment conditions.

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Consequently, KIADB treated the change as a transfer and demanded payment of differential land cost along with other charges. By letter dated 29.02.2015, the respondent was directed to pay Rs.7,05,83,861/-, relying on its policy dated 31.05.1996, under which the case did not fall within exempted categories. On 16.03.2015, the

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respondent sought execution of a Sale Deed, wherein the KIADB reiterated that it was a distinct legal entity and raised a revised demand of Rs.7,45,15,312/- on 11.12.2015. This was challenged in Writ Petition No.2245/2016, which was disposed of on 24.10.2017 granting liberty to produce documents to establish whether there was a substantive change in the constitution. Upon reconsideration, KIADB found that as on 30.09.2014, M/s. Mysore Kirloskar Limited held only 36.11% shareholding, confirming dilution below the mandated 50% and that it was not a mere change of name. Consequently, by order dated 08.08.2019, KIADB demanded a sum of Rs.9,82,73,865/- for further processing of the respondent's request.

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Aggrieved by the said order dated 08.08.2019, the respondent herein filed Writ Petition No.50431/2019 (GM-KIADB), seeking quashing of the said demand and a direction to KIADB to execute the sale deed at the original allotment rate applicable to similarly situated plots in the Bommasandra Industrial Area.

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The learned Single Judge observed that the change from M/s. Kirloskar Synder General Limited to M/s. Kirloskar AAF Limited was merely a change of name, duly certified by the Registrar of Companies under the Companies Act through issuance of a fresh Certificate of Incorporation, without any alteration in shareholding. It was also observed that the identity or constitution of the Company remain unchanged and the same entity continued under a different name. The only stipulated condition that M/s. Mysore Kirloskar Limited retains 50% shareholding as approved by RBI on 09.07.1992 and found to have been complied with.

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The learned Single Judge rejected the contention that M/s. Kirloskar AAF Limited was a distinct legal entity and held that the demand for payment based on prevailing market value, was unsustainable. Placing reliance on the decision of this Court in the case of Molex India Private Limited v. Karnataka Industrial Areas Development Board reported in 2016 SCC OnLine Kar 9044 and affirmed in Karnataka Industrial Areas Development Board v. Molex (India) Private Limited passed in Writ

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Appeal No.419/2017, the learned Single Judge held that such demands were impermissible. Accordingly, the communication dated 08.08.2019 demanding a sum of Rs.9,82,73,865/- was quashed and the KIADB was directed to execute the Sale Deed in favour of the petitioner, subject to payment of applicable stamp duty and registration charges.

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The learned senior counsel appearing for the appellant contends that the finding of the learned Single Judge that the respondent company had only a change of name without alteration in its constitution was contrary to the material on record. It was further contended that the condition in the letter dated 17/18.11.1992 requiring M/s.Mysore Kirloskar Limited to maintain 50% shareholding, was violated, as documents relating to the shareholding pattern from the year 1992 to September 2014, established that as on 30.09.2014, M/s. Mysore Kirloskar Limited held only 36.11% shares, while AAF Mcquay Inc held 50% shares and Asara Sales and Investment Pvt Ltd held 8.33% shares. A certificate issued by the Company Secretary evidencing

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these changes was not considered by the learned Single Judge.

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It is further contended that the case involved a

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substantive alteration in the shareholding, not merely a change of name, thereby changing the constitution of the company. Under Clause 2(r) of the lease-cum-sale agreement, such change required prior written consent of the Executive Member, which was neither obtained nor disclosed to KIADB. The change, occurring about eight months after the agreement dated 05.08.1993, was concealed and reflected a speculative intent to profit from a concessional industrial allotment, constituting breach of allotment conditions and Clause 2(r) of the lease-cum-sale agreement and defeating the object of the Karnataka Industrial Areas Development Act, 1966. As per KIADB’s resolution dated 31.05.1996, the present case did not fall within exempted categories and was liable to be treated as a transfer attracting payment obligations, an aspect which was not considered by the learned Single Judge.

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It was further contended that the contractual relationship existed only between KIADB and M/s. Kirloskar Snyder General Limited, the original lessee and not with M/s. Kirloskar AAF Limited. Hence, the writ petition itself was not maintainable. The dispute arose from a concluded contract involving disputed questions of fact, falling within the realm of private law and not amenable to writ jurisdiction. It was also contended that reliance on Molex India Private Limited 's case (supra), was misplaced as the case involved only a change from a public to a private limited company without alteration in shareholding, unlike the present case.

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It is further contended that the learned Single Judge erred in holding that the dispute did not involve contractual issues, despite it arising from alleged breach of allotment conditions and the lease-cum-sale agreement. It is contended that the writ petition was barred by the doctrine of constructive res judicata , since similar relief had been sought earlier in W.P.No.2264/2016, where only liberty to submit a representation was granted. Pursuant to which

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KIADB determined that there was a violation and that the change amounted to transfer, which aspect was not considered by the learned Single Judge.

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The learned senior counsel appearing for the

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appellant has placed reliance on the following decisions:-

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Bihar Industrial Area Development Authority and Ors. v. Amit Kumar & Ors reported in (2019) 10 SCC 733;

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Phatu Rochiram Mulchandani v. Karnataka Industrial Areas Development Board & Ors reported in (2015) 5 SCC 244, and

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Bharat Coking Coal Ltd. & Ors. v. Amr Dev Prabha & Ors reported in (2020) 16 SCC 759.

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The learned senior counsel appearing for the

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respondent contends that the lease of the schedule property was for a period of 11 years, from 18.11.1992 to 17.11.2003 and upon the completion of the lease period, subject to the compliance with its conditions, the appellant was obligated to execute the Sale Deed in favour of the respondent. It is contended that Clause 2(r) of the leasecum-sale agreement did not prohibit changes in the

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shareholding or composition of shareholders, but only restricted changes in the allottee entity. In the present case, there was no change in the legal entity, as the allottee remained the same and only its name was changed on 06.06.1995 from M/s. Kirloskar Snyder General Limited to M/s. Kirloskar AAF Limited, consequent to a change in the name of its foreign shareholder.

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It is further contended that when the respondent sought execution of the sale deed after completion of the lease period, the appellant treated the name change as a violation of Clause 2(r) of the lease-cum-sale agreement and raised a demand. By letter dated 16.03.2015, the respondent clarified that it remained the same legal entity, but, the appellant reiterated its demand, leading to filing of a Writ Petition No.2264/2016. For the first time, the appellant contended that the promoters were required to maintain 51% shareholding, though no such condition existed in the lease-cum-sale agreement. It was asserted that there had been no transfer of shares outside the Kirloskar Group, which internal transfers were permissible

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and that Asara Sales and Investment Private Limited was a Kirloskar Group Company.

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Pursuant to the liberty granted by the Court in its order dated 24.10.2017, the respondent submitted a detailed representation on 11.04.2018 with supporting documents reiterating that there was no change in the allottee entity. Despite this, the appellant failed to address the representation, instead sought unrelated information regarding construction on the property. Even after compliance, no substantive response was given and the sale deed was not executed, compelling the respondent to file a second writ petition.

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By communication dated 08.08.2019, the appellant reiterated its stand regarding alleged share dilution and imposed an enhanced demand of Rs.9,82,73,865/-. It is contended that such a demand was arbitrary and unsustainable, as there was no prohibition on share dilution under the agreement. It emphasized that the only requirement that M/s. Mysore Kirloskar Limited subscribe to 50% share capital as per RBI approval had

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been complied with and that having fulfilled all contractual obligations, the respondent was entitled to execution of the sale deed without being subjected to such demand.

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The learned senior counsel appearing for the respondent has placed reliance on the following decisions:-

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Molex India Pvt. Ltd. v. Karnataka Industrial Areas Development Board reported in 2016 SCC OnLine Kar 9044, and

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The Karnataka Industrial Areas Development Board v. Molex (India) Pvt. Ltd passed in WA No.419/2017 by order dated 09.01.2020.

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Having considered the contentions advanced on either side, we notice that the learned Single Judge has considered the factual aspects of the matter and has come to the finding of fact that the entity to which the allotment was initially made remained unchanged. It was found that M/s. Kirloskar AAF Limited, was the same legal entity to which allotment had been made. If that were to be the

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case, the demand raised would not be sustainable.

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A co-equal bench of this Court in KIADB v. Molex (India) Private Limited 's case (supra) has specifically held as follows:-

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"3. The appellant’s counsel contended that the learned Single Judge having held that there is a change in the share pattern, could not have allowed the writ petition. Annexures-A and B would clearly indicate the change in the share pattern. Therefore, there has been a violation of clause 2(iii)(r) of the agreement. The said clause reads as follows:

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“(r) No change in the proprietorship or partnership of a private limited or unlimited company or of a registered or unregistered partnership firm to whom the plot is handed over shall be recognized without the previous written consent of the Execxutive Member".

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4. The primary contention of the respondent is that it was a public limited company and therefore clause 2(iii)(r) of the agreement has no application. The said clause is applicable only with respect to proprietorship or partnership of a private limited or unlimited company or of a registered or unregistered partnership firm and the writ petitioner-Company does not come under any one of the categories. Therefore, the said clause is not applicable and if it is not applicable, its violation has no consequence. The learned Single Judge has accepted this contention. We do not find any ground to interfere with the same.

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5. A feeble attempt is sought to be made by the learned counsel for the appellant that it is a printer’s devil that has got into clause 2(iii)(r) wherein a comma

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requires to be inserted in between private and limited. We are afraid the contention cannot be accepted. The reasons assigned by the learned Single Judge in accepting the contention that the writ petitioner company does not come under clause 2(iii)(r) of the agreement has to be accepted. Further, the reasoning assigned by the learned Single Judge is that the petitioner had 100% shares in the company even as on 2009. We find no good ground to interfere with the same.

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6. Primarily, it can be seen that the said clause has been inserted in the agreement to ensure that every person to whom the land has been allotted, actually continues his business in the said land. Therefore, he is not permitted to transfer the same for any monetary gain to some other person. Since the land has been allotted to him, he has to make the best use of the same. In order to prevent such illegal acts, such a clause has been included.

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For all the aforesaid reasons, we do not find any error committed by the learned Single Judge in passing the well considered order. Hence, the writ appeal is dismissed."

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The learned Single Judge found from the material on record including the Certificate of Registration issued by the Registrar of Companies that there was no change in the shareholding pattern and there is only a change of name of the entity concern. It was after examining the Allotment Letter, Letter of Registration as well as the Certificate issued

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by the Registrar of Companies that the learned Single Judge came to this conclusion, on facts.

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Having considered the pleadings, materials on record and the contentions raised on either side, we are unable to accept the contention that finding of the learned Single Judge requires interference in this intra-Court appeal. The appeal fails and the same is accordingly dismissed.

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All pending interlocutory applications shall stand disposed of.

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Sd/(ANU SIVARAMAN) JUDGE

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Sd/(TARA VITASTA GANJU) JUDGE

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cp*

Karnataka Industrial Area Development Board v. M/S Kirloskar Aaf Limited

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Karnataka Industrial Area Development Board v. M/S Kirloskar Aaf Limited

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