Does the transition from sole proprietorship to partnership incur an additional 5% charge on land cost, Bombay High Court Answers

Facts:

• Petitioner M/s Gemini Developers is the owner and developer of a private property declared as a ‘Slum’ under the Maharashtra Slum Areas Act, 1971. The property has 172 eligible slum dwellers.
• In 2003, M/s Gemini Developers, a sole proprietorship of Mr Ramesh Malhotra was appointed as the Developer. Between 2006-2016, eligible slum dwellers were rehabilitated.
• In 2015, the proprietorship was converted to a partnership firm, inducting Mr Malhotra’s wife and son as partners to ensure the project is completed in case of Mr Malhotra’s demise.
• Mr Malhotra expired in March 2016, leaving behind a Will bequeathing the project to his wife and son.
• Society represented by some non-cooperative members filed an appeal before the AGRC challenging the appointment of Petitioner as Developer. AGRC upheld the appointment in its order dated 28.06.2019.
• However, AGRC imposed two additional conditions – payment of 5% of land cost as per SRA office order dated 23.03.2015 which applies in case of change of Developer, and completion of project within 24 months.
• Petitioner has challenged the 5% payment condition in this writ petition.

Arguments By Petitioner:

• Conversion of proprietorship to partnership was to pass on the project to legal heirs, not to induct a new Developer.
• SRA office order exempts payment if change is due to death of sole Developer towards legal heirs. Petitioner’s case falls under this exemption.
• AGRC failed to consider this exemption and mechanically passed the directions.

Arguments By Respondents:

• SRA office order applies in case of change of partners or share transfer after death also.
• Here, proprietorship was first converted to partnership, so clause regarding change of partners applies.
• Later, after Mr Malhotra’s death, his share transfer happened. So while exemption applies for this, payment is still due for the first change.
• Impugned directions are correctly passed.

Court’s Opinion and Decision:

• Intent behind SRA office order is to charge fees primarily for third party induction. Exemption is given in case of changes towards legal heirs after death.
• Here, Mr Malhotra converted proprietorship to partnership only to pass on project to wife and son, not to induct third parties.
• After his unfortunate demise within 2 months, his Will bequeathed project to wife and son.
• Thus Petitioner’s case squarely falls under exemption clause. Impugned direction regarding 5% payment is quashed and set aside.

Referred Laws and Sections:

• Articles 226 and 227, Constitution of India
• Maharashtra Slum Areas Act, 1971
• SRA Office Order dated 23.03.2015