Property Law

Omniplast Pvt. Ltd. v. HSIIDC Ltd.

CWP No. 21239 of 2013

Facts

Omniplast was allotted an industrial plot by the Haryana State Industrial and Infrastructure Development Corporation, or HSIIDC.
The regular letter of allotment provided that:
the plot would continue to belong to HSIIDC until payment of the price and other dues;
the allottee could not sell, gift, mortgage, lease or otherwise transfer it without HSIIDC’s prior written approval.
A conveyance deed was later executed containing a similar restriction.
Omniplast wanted to mortgage the plot to IndusInd Bank to obtain finance on favourable terms.
It sought HSIIDC’s permission, but the request was not promptly decided.
Omniplast challenged the permission clause as:
arbitrary;
contrary to absolute ownership;
an invalid restraint on transfer; and
an infringement of Article 300A.
HSIIDC argued that it retained an interest in ensuring recovery of enhanced compensation, maintenance charges, water charges and other dues connected with the plot.

Whether a condition requiring prior approval before mortgage or transfer was legally valid.
Whether execution of the conveyance deed gave Omniplast an unrestricted absolute interest.
Whether HSIIDC could preserve a charge or regulatory interest after conveyance.
Whether the delay in granting permission justified invalidating the clause.

The exact nature of an interest transferred depends upon the conveyance read as a whole.
A deed may transfer property while reserving:
a charge;
a right of re-entry;
a condition protecting unpaid dues; or
another legally recognised interest.
Section 31 TPA recognises interests that may cease upon the occurrence or non-occurrence of specified uncertain events.
A regulatory condition is not necessarily an absolute restraint if it protects a continuing financial or proprietary interest of the transferor.
A condition voluntarily incorporated into an allotment and conveyance ordinarily binds the allottee unless it is contrary to statute or public policy.

The allotment letter and conveyance deed formed part of one continuous transaction.
Both clearly informed Omniplast that prior approval was required before mortgage or transfer.
HSIIDC had not imposed the condition later or without notice.
Even after the initial price was paid, liabilities such as:
enhanced land compensation;
maintenance charges;
water and sewage dues; and
other estate charges, could remain recoverable.
If the property were freely mortgaged and sold by a bank without accounting for those liabilities, HSIIDC’s ability to recover public dues could be prejudiced.
The condition therefore served a defined protective purpose.
It did not permanently prevent mortgage or transfer.
It merely required prior approval so that HSIIDC’s charge and dues could be recognised.
Consequently, the clause was not equivalent to confiscation or deprivation of property.
At the same time, the Court accepted that requiring a separate NOC for every institutional mortgage could cause serious delay and hinder industrial finance.
HSIIDC’s legitimate interest could be protected through a less burdensome arrangement:
the allottee could mortgage to a scheduled bank;
HSIIDC’s existing dues would remain a first charge;
the bank would honour those dues if it enforced the security.
The Court thus preserved the lawful proprietary protection while reducing administrative harassment.

The prior-approval clause was not invalid or unconstitutional.
HSIIDC was entitled to preserve its interest and recover outstanding dues from the allotted plot.
However, HSIIDC was directed to streamline the process.
Allottees were to be allowed to mortgage plots to scheduled banks, subject to HSIIDC’s first charge for outstanding dues.
HSIIDC was directed to issue a general circular to reduce delays in granting NOCs.