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

Gemini Developers 

… Petitioner

Versus

State of Maharashtra & Ors.

..Respondents

Case No: Writ Petition No.  103 of 2020

Date of Judgement: 15th December, 2023

Download Judgement: Click Here

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