While examining the clauses of an agreement to lease between the Delhi Development Authority (DDA) and a party, the Supreme Court observed that leasehold rights were not conferred unless the lease deed was duly executed and registered.

The bench, consisting of Justice Abhay S. Oka and Justice Ujjal Bhuyan, was hearing an appeal by the Delhi Development Authority (DDA) challenging the High Court's decision, which had upheld the auction sale of the suit property.

In 1957, the Delhi Development Authority (then Delhi Improvement Trust) entered into an agreement to lease with M/s Mehta Constructions for the suit property. However, the lease deed was never executed. Clause 24 of the agreement explicitly stated that no rights, title, or interest would be created until the lease was duly executed and registered.

In 1972, M/s Mehta Constructions agreed to sell the plot to M/s Pure Drinks Pvt. Ltd. (second respondent). Subsequently, in 1985, a sale deed was executed in favor of M/s Pure Drinks, and the Delhi High Court directed its registration.

M/s Pure Drinks went into liquidation, and the plot was auctioned in 2000, with S.G.G. Towers (P) Ltd. (first respondent) emerging as the purchaser. 

Challenging the auction sale in favor of the first respondent, the appellant DDA moved the Delhi High Court, contending that Mehta Constructions never acquired leasehold rights, rendering the sale invalid.  

Both the Single Judge and the Division Bench of the High Court upheld the auction sale, prompting DDA to appeal to the Supreme Court.

In its judgment authored by Justice Oka, the Supreme Court, relying on Clause 24 of the agreement, held that no leasehold rights were created in favor of M/s Mehta Constructions since the lease deed was never executed.  

Furthermore, the Court ruled that S.G.G. Towers could not claim ownership of the property.

“Thus, the scenario which emerges is that the first respondent(SGG Towers) is not entitled to either ownership or leasehold rights in respect of the said plot. The first respondent cannot claim to be a lessee as the lease in terms of the lease agreement was never executed.”, the court observed.

The auction sale to the first respondent was conducted on an "as-is" basis, meaning the purchaser acquired only the rights, if any, that M/s Mehta Constructions possessed—which were none.  

The Court clarified that since the agreement to lease in favor of M/s Mehta Constructions was never executed and was itself on an "as-is" basis, the subsequent transferee, S.G.G. Towers (first respondent), could only acquire whatever limited rights M/s Mehta Constructions held, which did not include leasehold ownership.

"The first respondent will get only those rights which M/s Mehta Constructions had under the lease agreement, provided the rights can be claimed at this stage. In fact, in the impugned judgment, the Division Bench of the High Court had observed that the auction would not amount to sale of the said plot. The impugned judgment leaves the remedy of the appellant open to proceed against the concerned parties. These findings have been accepted by the first respondent."

With these observations, the Court dismissed the appeal, affirming that the first respondent, S.G.G. Towers, had no rights over the plot. It further held that the DDA was free to pursue remedies for possession recovery and unearned income against the first respondent.  

Additionally, the Court stated that if S.G.G. Towers wished to regularize the transaction, it could apply to the DDA for approval, subject to the payment of unearned income.

“Thus, the scenario which emerges is that the first respondent is not entitled to either ownership or leasehold rights in respect of the said plot. The first respondent cannot claim to be a lessee as the lease in terms of the lease agreement was never executed. At the same time, if according to the case of the appellant, M/s Mehta Constructions had committed breach of the lease agreement, notwithstanding the impugned orders, it will be always open for the appellant to adopt appropriate remedy for recovery of possession and/or recovery of unearned income against the first respondent.”, the court held.

Case Title: Delhi Development Authority Versus S.G.G. Towers (P) Ltd. & Ors.