SC paves way for conversion of Chandigarh commercial units to freehold

Dushyant Singh Pundir

Chandigarh, August 29

The Supreme Court today paved the way for conversion of leasehold industrial and commercial properties to freehold in the city. The court has asked the UT to act accordingly within three weeks.

During a resumed hearing of the ‘Estate Officer versus Charanjit Kaur’ case, the Division Bench of Justice Hemant Gupta and Justice Sudhanshu Dhulia found the issues raised by the UT Administration in the action taken report on conversion of industrial or commercial plots from leasehold to freehold not tenable for various reasons.

On the first issue raised by the Administration that Chandigarh was a landlocked UT with limited land resource and if the commercial and industrial plots were converted to freehold, there would be shortage of property with the UT, the Bench observed: “We do not understand the logic of the said reasoning. The properties whether they are leasehold or freehold are not available with the Administration for use according to their own choice.”

On the issue that annual ground rent from leased out properties was a regular source of revenue for the UT, the apex court stated the ground rent could not be said to be a regular income. “If the property is converted to freehold, it will lead to transfer of the property inviting attractive stamp duty on the sale documents,” stated the court.

The freehold property may increase the investment in the industrial or service industry, giving employment to the citizen, more revenue and taxes — direct and indirect. The long-term benefit would outweigh the projected income from the ground rent, observed the Bench.

The reason given by the Administration was wholly untenable when it was said it could be windfall gain at the cost of exchequer in case of sale of the property. In fact, if the property was converted to freehold, it would lead to ease of doing business, which would attract not only capital investment but also human resource leading to the overall development of the city, stated the court.

The chances of legal conflicts that might arise in multiple transfers on account of huge gain was only imaginary, stated the SC, adding: “The chances of legal conflicts cannot be a ground for avoiding conversion of leasehold property into freehold. In fact, non-conversion leads to more problems as the financial needs of an individual are inevitable. The needs of an individual should be easily met.”

On the issue of use of the industrial sites under the Micro, Small and Medium Enterprises Development Act, 2006, the Bench stated the Administration itself had allowed commercial properties to be used for different purposes on March 31, 2006, after policy of conversion of use of buildings from a particular trade on payment of conversion charges.

Such policy had a negative list of prohibited activities not permitted in plots or building allotted for use of commercial purposes. The same process could be adopted for industrial sites where industrial sites could be permitted to be used for any manufacturing activity or service industry having a negative list, stated the court. The next date of hearing had been fixed for September 16.

Properties in question

Commercial 6,621

Industrial 1,451

500 allotted to edu, political, cultural, institutional bodies

Scathing observations on Admn’s pleas

On annual rent being a regular revenue source

“Freehold property may increase investment in industrial/service industry, giving jobs, more taxes. Long-term benefit outweigh income from ground rent”

UT’s limited land resource

“We do not understand the logic. Properties whether leasehold or freehold aren’t available with the UT for use according to own choice”

Fear of legal conflicts

“It can’t be a ground for avoiding conversion. In fact, non-conversion leads to more problems as financial needs of an individual are inevitable”

Consumer panel order challenged

• Charanjit Kaur had sought conversion of a plot in Sector 46-D, Chandigarh, from leasehold to freehold on acceptance of requisite conversion fee
• The National Consumer Disputes Redressal Commission in May 24, 2017, order directed the Estate Office to convert plot after charging fee
• It was told to pay Rs 10,000 in compensation and Rs 5,000 as costs of litigation. The Estate Office filed an appeal in the Supreme Court against the order