Madras High Court flags private firm earning a fortune by sub-leasing public land given to them for ₹1

The Madras High Court recently allowed the State Industries Promotion Corporation of Tamil Nadu (SIPCOT) to recover sub-leasing charges from a lessee on the ground that public industrial land allotted at a nominal rent cannot be commercially exploited (SIPCOT Vs Carriers Private Limited)

A Division Bench of Justices SM Subramaniam and C Kumarappan said such arrangement amounted to “unjust enrichment” and was “opposed to public policy”.

The Court passed the ruling while setting aside a 2022 single-judge order quashing SIPCOT’s demand for sub-leasing charges from Carriers Private Limited.

The private company had been allotted 17.64 acres in a SIPCOT industrial park in 2005 for 99 years at an annual rent of ₹1. It was permitted to establish warehousing and logistics facilities and subsequently entered into “sub-lease agreements” with third parties .

Examining one such sub-lease, the Court noted that the company was collecting ₹12,41,764 per month for 93,718 sq. ft., with 5% annual escalation and 18% interest for delayed payment.

In stark contrast, the lessee was paying SIPCOT just ₹1 per year for the entire land parcel.

“It amounts to unjust enrichment to the respondent / Company and detrimental to the appellant, who is the State. Such disproportionate lease conditions, one for the State and another for private lessees undoubtedly infringes the public property right and is opposed to public policy," the Court said.

The Bench added that sheds or warehouses constructed on leased land cannot be held as independent, adding that the land and building are inseparable. Thus, it concluded that sub-leasing buildings attached to the earth amounted to sub-letting the land.

The Court placed reliance on clause 39 of the lease deed which reserved SIPCOT’s right to impose further conditions necessary “for the benefit of the Industrial Park as a whole”

It held that this clause was sufficient to justify recovery of sub-leasing charges and that the single- judge had failed to consider its scope in the context of constitutional principles.

Emphasising on the State’s obligations under Article 39(b) and (c), the Bench observed,

“State is not empowered to enter into a contract with private persons, which is detrimental to public interest.”

Invoking the public trust doctrine, the Court cited Supreme Court precedents to underline that public resources must be managed for the common good and cannot be permitted to become instruments of private profiteering

Thus, the Court upheld the corporation’s right to recover sub-leasing charges, reinforcing that concessional allotments of public land cannot be converted into instruments of disproportionate private gain.

SIPCOT was represented by Senior Advocate Viduthalai with Advocate Palaniappan

The respondent was represented by Advocate JV Niranjan.

[Read Judgment]