Supreme Court Quashes Lease Dispute Over Shimla Property Between Himachal Pradesh and HPTDC

The case of State of Himachal Pradesh vs. Ravinder Kumar Sankhayan deals with a property lease dispute between the Himachal Pradesh Government, the Municipal Corporation of Shimla, and the Himachal Pradesh Tourism Development Corporation (HPTDC). The Supreme Court was called upon to examine the legality of a High Court order that directed the re-auction of a prime commercial property in Shimla, known as ‘Goofa’ and ‘Ashiana’ restaurants, despite a subsisting lease agreement with HPTDC.

The ruling underscores the importance of adhering to contractual agreements and statutory procedures before taking administrative actions regarding leased public properties.

Background of the Case

The dispute arose when a public interest litigation (PIL) was filed before the Himachal Pradesh High Court, challenging the low rental rates at which the Municipal Corporation had leased the ‘Goofa’ and ‘Ashiana’ restaurants to HPTDC. The petition argued that the properties were not leased through an open bidding process, leading to significant revenue loss for the Municipal Corporation.

In response, the High Court directed the Municipal Corporation to invite fresh bids for leasing the property. Following this, a private entity named N & S Resorts submitted the highest bid, offering a monthly rent of Rs. 6,51,000—far exceeding the amount paid by HPTDC.

HPTDC and the State Government challenged this decision before the Supreme Court, contending that the High Court had erred in ordering a re-auction without addressing the existing lease agreement.

Claims of the State of Himachal Pradesh

The State Government and HPTDC argued:

The lease agreement with HPTDC was still valid, and the High Court could not direct an auction without first terminating the existing lease.
HPTDC, being a state-run tourism corporation, played a key role in promoting tourism and should not be treated the same as private bidders.
The High Court overstepped its jurisdiction by interfering in administrative decisions without considering the legal standing of HPTDC’s lease.

Claims of the Respondents

The respondents, including N & S Resorts and the PIL petitioner, contended:

The Municipal Corporation suffered financial losses due to low rental rates charged to HPTDC.
The High Court had rightly ordered a re-auction in the public interest, as open bidding ensured higher revenue generation.
Since HPTDC was making losses in running the restaurant, a private operator could manage the property better.

Supreme Court’s Observations

The Supreme Court held that the High Court’s decision to order a re-auction without considering the subsisting lease agreement was legally flawed. It emphasized:

“It was nobody’s case that HPTDC was in unauthorized occupation of the subject properties. At best, the High Court felt that the agreed lease rent was on the lower side, which inevitably progenerated financial loss to the Municipal Corporation.”

The Court further noted that the High Court had not quashed the lease agreement or given any reason why it should be ignored.

Key Findings of the Supreme Court

The High Court could not order a re-auction without first addressing the legality of the subsisting lease agreement with HPTDC.
The Municipal Corporation had the statutory authority to negotiate lease agreements and revise rental amounts through due process.
The lease agreement’s termination was an administrative matter that required proper notice and procedures.
HPTDC’s financial standing and role in promoting tourism were relevant considerations that the High Court had overlooked.

Final Judgment

The Supreme Court ruled:

The High Court’s orders dated May 24, 2005, and July 5, 2005, were set aside.
The Municipal Corporation must follow proper legal procedures before considering any change in lease agreements.
HPTDC was allowed to continue possession of the property under its existing lease terms.
The earnest money deposited by N & S Resorts for the re-auction must be refunded with interest.

Key Takeaways from the Judgment

Leases Must Be Respected: Courts must not interfere with valid lease agreements without proper legal reasoning.
Public Interest vs. Legal Compliance: Even if an action benefits public revenue, it cannot violate existing contractual rights.
Role of State-Run Corporations: Government enterprises like HPTDC have distinct roles in public service and cannot be treated the same as private businesses.

This ruling reinforces the principle that administrative decisions regarding leased government properties must be taken in accordance with the law, ensuring fairness to all parties involved.

Petitioner Name: State of Himachal Pradesh
Respondent Name: Ravinder Kumar Sankhayan & Others
Judgment By: Justice Dipak Misra, Justice A.M. Khanwilkar
Place Of Incident: Shimla, Himachal Pradesh
Judgment Date: 28-03-2018

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