'Agreement To Lease Didn't Create Leasehold Rights Without Execution' : Supreme Court In Delhi Development Authority's Appeal

While interpreting the clauses in an agreement to lease entered into between the Delhi Development Authority (DDA) and a party, the Supreme Court noted that the agreement to lease did not create leasehold rights unless the lease deed was executed and registered.

The bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan was deciding Delhi Development Authority's (DDA) appeal against the High Court's ruling, which had affirmed the auction sale of the suit property.

Briefly put, DDA (then Delhi Improvement Trust) executed an agreement to lease in favor of M/s Mehta Constructions for the suit property in 1957. The lease deed was never executed, and Clause 24 of the agreement stated that no rights, title, or interest would be created until the lease was executed and registered.

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

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

Challenging the auction sale in the first respondent's favour, the Appellant DDA approached the Delhi High Court arguing that Mehta Construction never acquired leasehold rights, and thus, the sale was invalid.

The Single Judge and Division Bench of the High Court confirmed the auction sale, leading DDA to appeal to the Supreme Court.

Deciding the appeal, the judgment authored by Justice Oka, placing reliance on Clause 24 of the agreement, stated that no leasehold rights were created in favor of M/s Mehta Constructions, as the lease deed was never executed.

Moreover, the Court held that SGG Towers cannot claim ownership.

“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 it is basis, meaning the purchaser acquired only whatever rights M/s Mehta Constructions had (which were none).

The Court clarified that since the agreement to lease (which was never executed) in favor of M/s Mehta Constructions was on an "as it is basis”, the subsequent transferee, i.e., the first respondent (S.G.G. Towers), could only acquire the rights that M/s Mehta Constructions held.  

"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, clarifying that the first respondent, S.G.G. Towers, had no rights over the plot. It further held that the DDA is free to pursue remedies for possession recovery and unearned income against the first respondent. Additionally, the Court stated that if S.G.G. Towers seeks to regularize the transaction, it may 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.

Citation : 2025 LiveLaw (SC) 306

Click here to read/download the judgment

Appearance:

For Appellant(s) Mr. Abhinav Mukerji, Sr. Adv. Mr. Nitin Mishra, AOR Ms. Mitali Gupta, Adv. Mr. Ishaan Sharma, Adv.

For Respondent(s) Mr. Anand Sukumar, AOR Mr. S. Sukumaran, Adv. Mr. Bhupesh Kumar Pathak, Adv. Mr.. Kshitis Mittal, Adv. Ms. Ruche A, Adv. Mr. Harish Malhotra, Sr. Adv. Mr. Dhruv Kapur, Adv. Mr. Baldev, Adv. Mr. Vidit Agarwal, Adv. Ms. Ritika Sethi, AOR Mr. Satish Kumar, AOR