Unearned increase on demerger: transfer of leasehold assets to a subsidiary justified demand and notice

A scheme of arrangement and demerger transferring the original lessee's assets to its subsidiary attracted the respondent's instructions requiring 50% of the unearned increase to be paid on substitution of lessee for the commercial plot. Clause 1(a) was inapplicable because it covered partnership firms and private limited companies, not a public limited company. Clause 6(a) of the perpetual lease deed also prohibited transfer, assignment or parting with possession without prior consent and treated such transfer as liable to unearned increase. The earlier precedent cited by the petitioners was distinguished on facts and for not addressing the governing instructions, so the demand and consequential notice were upheld as valid.

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Issues: Whether the demand for unearned increase and misuse charges was valid on the demerger and substitution of lessee in respect of the commercial plot.

Analysis: The scheme of arrangement and demerger showed that the assets of the original lessee stood transferred to the subsidiary, attracting clause 2(d) of the respondent's instructions making 50% of the unearned increase payable. Clause 1(a) of the instructions was held inapplicable because it covered partnership firms or private limited companies and not public limited companies. Clause 6(a) of the perpetual lease deed also prohibited transfer, assignment or parting with possession without prior consent and made such transfer liable to unearned increase. The earlier decision relied upon by the petitioners was distinguished on facts and for not dealing with the governing instructions.

Conclusion: The demand for unearned increase and the consequential notice were upheld as valid, and the writ petition failed.

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