SEZ co-developer rights after SARFAESI auction sale: prior notice under the SEZ transfer procedure was not required.

Where a party's rights in an SEZ plot had already been lawfully extinguished through sale and possession under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Gujarat High Court held that the Special Economic Zones Act, 2005 suspension and transfer procedure was not required before recognising the auction purchaser as co-developer. Section 10 and Rule 2(s) were inapplicable because the approval merely reflected the changed title and possession, rather than altering an existing co-developer arrangement. The Board was therefore justified in approving the auction purchaser, and no prior show-cause notice was required against the earlier holder of rights.

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Issues: (i) Whether the procedure under Section 10 of the Special Economic Zones Act, 2005 and Rule 2(s) of the Special Economic Zones Rules, 2006 was required before the Board approved co-developer status in favour of the auction purchaser. (ii) Whether the Board could recognise the auction purchaser as co-developer after the petitioner's plot had been sold and possession had been taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Issue (i): Whether the procedure under Section 10 of the Special Economic Zones Act, 2005 and Rule 2(s) of the Special Economic Zones Rules, 2006 was required before the Board approved co-developer status in favour of the auction purchaser.

Analysis: Section 10 governs suspension and transfer of a developer's letter of approval in specified cases, including notice and opportunity to show cause. The petitioner's grievance was founded on the premise that its co-developer arrangement could be altered only through that route. The Court held that this premise did not fit the facts, because the petitioner's rights had already been divested through proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the approval granted to the auction purchaser was only to give effect to that subsequent change in title and possession.

Conclusion: Section 10 and Rule 2(s) were held inapplicable, and no prior show-cause procedure was required against the petitioner.

Issue (ii): Whether the Board could recognise the auction purchaser as co-developer after the petitioner's plot had been sold and possession had been taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Analysis: The Court noted that the petitioner had defaulted in repayment, possession of the plot had been taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the property had been sold in auction. In that backdrop, the petitioner's earlier co-developer arrangement had become redundant and its rights stood extinguished. The Court also relied on the statutory finality and overriding effect of the securitisation regime to hold that the Board was justified in acting upon the auction sale and approving the respondent's co-developer status.

Conclusion: The Board's decision to approve the auction purchaser as co-developer was upheld.

Final Conclusion: The petition was held to be without merit because the petitioner's co-developer rights had ceased after the securitisation sale, and the impugned approval merely recognised the legal consequence of that transfer.

Ratio Decidendi: Where a claimant's rights in an SEZ plot have been lawfully extinguished by auction sale and transfer under the securitisation regime, the SEZ authorities need not invoke the suspension and transfer procedure applicable to an existing developer or co-developer before recognising the transferee as co-developer.

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