Source: Supreme Court 

Why in News? 

A bench of Justice Abhay S Oka and Justice Ujjal Bhuyan while interpreting the clauses of the agreement to lease held that the agreement to lease did not create leasehold rights unless the lease deed was executed and registered.  

• The Supreme Court held this in the case of Delhi Development Authority v. S.G.G.  Towers (P) Ltd. & Ors. (2025). 

What was the Background of Delhi Development Authority v. S.G.G.  Towers (P) Ltd. & Ors. (2025) Case?   

• On 17^th July 1957, the Delhi Development Authority (DDA), formerly known as the Delhi Improvement Trust, executed a lease agreement for Plot No. 3, measuring 2044.4 square yards, located in the Industrial Area Scheme, Najafgarh Road, New Delhi, in favor of M/s Mehta Constructions and Industrial Corporation Private Limited. 
• On 25^th November 1972, M/s Mehta Constructions entered into an agreement to sell the plot to M/s Pure Drinks Private Limited. Subsequently, a registered sale deed-cum-assignment was executed on 15th February 1985 in favor of M/s Pure Drinks Private Limited. 
• In Execution Proceedings (Co Ex 8 of 1981), the Delhi High Court, by an order dated 4^th February 1985, directed the Registrar of the High Court to lodge the sale deed for registration in the office of the Sub-Registrar, Delhi. 
• M/s Pure Drinks Private Limited eventually went into liquidation, and the plot was auctioned on 24^th August 2000 as part of the liquidation proceedings before the Delhi High Court. The auction was conducted pursuant to a notice of proclamation of sale issued by the High Court of Punjab and Haryana on 9th June 2000. 
• On 7^th December 2000, the first respondent, who had successfully bid for the plot in the auction, applied for confirmation of the sale. The DDA appeared in the proceedings and filed a reply, contending that M/s Mehta Constructions had never acquired any interest in the plot, and therefore, the plot could not have been sold in the auction. 
• By an order dated 19^th October 2001, the learned Single Judge of the Delhi High Court allowed the application filed by the first respondent and confirmed the auction sale. 
• Aggrieved by this decision, the DDA filed an appeal before the Division Bench of the High Court. However, by an impugned judgment dated 21st January 2010, the appeal was dismissed. 

What were the Court’s Observations? 

• The Delhi Improvement Trust executed an agreement to lease on 17th July 1957 in favor of M/s Mehta Constructions for a plot in Najafgarh Road, Delhi. The agreement included Clause 24, which clarified that no ownership or leasehold rights would arise until a formal lease deed was executed and registered. 
• A lease deed was never executed, yet M/s Mehta Constructions entered into a sale agreement with M/s Pure Drinks Pvt. Ltd. on 25th November 1972 for ₹3,06,700/-. Later, on 15th February 1985, a sale deed was executed in favor of M/s Pure Drinks. The Delhi High Court's Single Judge, in an order dated 4th February 1985, directed the Registrar to register the sale deed. 
• M/s Pure Drinks went into liquidation, and the plot was auctioned on 24th August 2000 under the orders of the Punjab and Haryana High Court. The first respondent placed the highest bid, and the Delhi High Court confirmed the auction sale on 19th October 2001. 
• The Delhi Development Authority (DDA) challenged the sale, arguing that M/s Mehta Constructions never had ownership rights. However, the Division Bench of the Delhi High Court dismissed the appeal. 
• The Supreme Court, in an order dated 4th October 2023, sought clarity on the unearned income payable under the transaction and directed the Provisional Liquidator to provide financial details. It was revealed that funds from the auction sale had been invested in fixed deposits, but the total pending claims against the company exceeded ₹60.66 crores, while the available funds were only ₹10 crores. 
• The Supreme Court reaffirmed that since the lease was never executed, M/s Mehta Constructions never acquired ownership rights, and neither did M/s Pure Drinks or the first respondent. The first respondent acquired only the rights under the lease agreement, if any, but not ownership or leasehold rights. 
• The Division Bench of the High Court had correctly ruled that the auction did not amount to a sale of the plot and allowed DDA to seek an appropriate remedy to recover possession or unearned income. 
• The Supreme Court ruled that if the first respondent wished to regularize the transaction, it could apply to the DDA for payment of unearned income or any other amount, which the DDA would consider as per the law. 
• Concluding the matter, the Supreme Court found no reason to interfere with the impugned judgments and dismissed the appeal.

What is a Lease Agreement?

• About: 
  • Under Section 105 of the Transfer of Property Act, 1882 (TOPA), a lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity. 
• Consideration and Duration under Section 105 of TOPA: 
  • It is made in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. 
• Parties: 
  • The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent. 
  • The TOPA lays down the rights and duties of both the lessor and the lessee. For example, the lessor must ensure that the lessee gets peaceful possession of the property, and the lessee must pay rent and maintain the property as agreed. 
• Types of Leases: 
  • Leases can be of various types, including leases for a fixed term, periodic leases, and leases in perpetuity. 
• Registration: 
  • In some cases, lease agreements may need to be registered, depending on the duration and terms of the lease, as per local laws. However, law related to duration of lease and procedure of lease is mentioned under Section 106 & 107 of TOPA. 
• Termination: 
  • A lease can be terminated on several conditions such as expiration of the lease term, breach of terms by either party, or mutual agreement.

What are the Legal Provisions Involved for Formation of Lease? 

• Section 106 of TOPA: Duration of certain leases in absence of written contract or local usage 
  • In the absence of a contract or local law or usage to the contrary, a lease of immovable property for agricultural or manufacturing purposes shall be deemed to be a lease from year to year, terminable, on the part of either lessor or lessee, by six months' notice; and a lease of immovable property for any other purpose shall be deemed to be a lease from month to month, terminable, on the part of either lessor or lessee, by fifteen days' notice. 
  • Notwithstanding anything contained in any other law for the time being in force, the period mentioned in sub-section (1) shall commence from the date of receipt of notice. 
  • A notice under sub-section (1) shall not be deemed to be invalid merely because the period mentioned therein falls short of the period specified under that sub-section, where a suit or proceeding is filed after the expiry of the period mentioned in that sub-section. 
  • Every notice under sub-section (1) must be in writing, signed by or on behalf of the person giving it, and either be sent by post to the party who is intended to be bound by it or be tendered or delivered personally to such party, or to one of his family or servants at his residence, or (if such tender or delivery is not practicable) affixed to a conspicuous part of the property. 
• Section 107 of TOPA: Lease how made - 
  • A lease of immoveable property from year to year, or for any term exceeding one year, or reserving a yearly rent, can be made only by a registered instrument. 
  • All other leases of immoveable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. 
  • Where a lease of immoveable property is made by a registered instrument, such instrument or, where there are more instruments than one, each such instrument shall be executed by both the lessor and the lessee. 
  • Provided that the State Government may, from time to time, by notification in the Official Gazette, direct that leases of immoveable property, other than leases from year to year, or for any term exceeding one year, or reserving a yearly rent, or any class of such leases, may be made by unregistered instrument or by oral agreement without delivery of possession.