Case Background
The case arises from an industrial plot originally allotted by Bihar Industrial Area Development Authority (BIADA) to M/s Bhojpur Bucket Industry on 16.06.1977. The allotment was for setting up a unit to manufacture buckets, with a lease period of 99 years.
The original allottee obtained a loan from Bihar State Financial Corporation (BSFC) by mortgaging the leasehold interest in the plot along with the machinery. The borrower defaulted in repaying this loan.
Because of this default, BSFC, acting as mortgagee, put the leasehold land and machinery to auction sale. The appellant purchased the property in this auction for Rs. 4,10,000/-. One of the terms of sale was that the purchaser would also clear the dues payable to BIADA by the original allottee.
After purchase, the appellant applied before BIADA for change of the name of the proprietor and of the project, and deposited the prescribed fee of Rs. 1,000/-. BIADA refused. The reason given was that the lease in favour of the original allottee had already been cancelled before the auction sale in favour of the appellant.
The appellant then approached the Patna High Court in C.W.J.C. No. 15639 of 2009. A Bench of the Court referred the dispute to the Principal Secretary, Department of Industries, who was also the Chairman of BIADA and BSFC. After enquiry and hearing both sides, the Principal Secretary validated the sale of the leasehold land but held that the appellant must pay transfer fee before the plot could be transferred in his name for a different project.
On this basis, BIADA asked the appellant to pay: Rs. 2,53,819/- towards dues of the erstwhile allottee, transfer fee of Rs. 1,71,329/-, and general charges of Rs. 4,532/-. The transfer fee was calculated at 15% of the value of the land, evaluated at Rs. 271.95 per sq. ft.
The appellant challenged this demand through C.W.J.C. No. 13485 of 2013, seeking quashing of the transfer fee. By judgment dated 18.05.2016, a learned Single Judge refused to interfere with BIADA’s policy decision to charge transfer fee, as the policy itself had not been challenged. However, the learned Single Judge left open the question of the correct rate or basis for calculation, since no supporting documents were then placed on record.
Meanwhile, the appellant, suffering losses due to non-transfer of the land in his name and the resulting inability to change the project, paid the demanded transfer fee and other dues under protest, reserving his rights to challenge the levy.
The present Letters Patent Appeal No. 1294 of 2016 arose from this single-judge decision. The Division Bench was called upon to decide whether BIADA was justified in charging transfer fee at all and, if so, what should be the proper quantum.
What the Court Examined and Decided
The appellant argued that once he had purchased the leasehold property in auction from BSFC, he stepped into the shoes of the original allottee. According to him, BIADA could claim only the unpaid dues of the original lessee, not any additional amount like transfer fee. He stressed that the original lease was for 99 years, and the sale by BSFC was a mortgage enforcement, not a voluntary sale by the lessee at a profit.
The appellant relied on an earlier Patna High Court decision in M/s Vikramshila Transformers vs. State of Bihar, 1994 (1) PLJR 604. In that case, the Court had held that the development authority could not charge the current market price of the land again from an auction purchaser of leasehold rights when the original lessee had already paid the price and no restrictive covenant allowed such further levy.
BIADA, on the other hand, argued that the appellant had sought not only change in name and project but also transfer of the land from one individual unit to another. BIADA contended that charging transfer fee in such cases is a well-established principle, followed by many statutory authorities such as Municipal Corporations and Housing Boards.
According to BIADA, transfer fee is usually a percentage of the enhanced land value and is a recognised way for the primary owner to share in the increased value and to fund infrastructure and security in industrial areas. BIADA pointed out that the Bihar Industries Association had suggested constitution of a committee under the Department of Industries to recommend ways to maintain infrastructure in industrial areas.
That committee recommended charging 15% of current land value as transfer fee in cases of transfer or sale. BIADA’s Board of Directors adopted this recommendation in its 4th meeting on 19.02.2004. Since then, every transfer or sale, including auction and distress sales, has been subjected to transfer fee at 15% of the current market value.
The appellant objected to applying this 2004 policy to his case, arguing that he entered into the auction purchase without any contemplation of such transfer fee, especially based on current market value. He submitted that he had only undertaken to pay the dues of the original allottee, and there was no covenant in the sale deed requiring payment of transfer fee to BIADA.
The appellant also attacked the method of computation. He contended that charging 15% of the current circle rate was arbitrary, particularly because the original lease was for 99 years and several years had already elapsed. In his view, BIADA failed to factor in that only about 64 years of lease remained, and therefore, even if transfer fee was permissible, it should have been reduced proportionately.
He further argued that BIADA, as a government agency, should not seek to “pocket” part of the unearned increase in land value as if it were a profit-making body.
The Division Bench first examined whether the earlier case of M/s Vikramshila Transformers actually supported the appellant. It noted that in that case the authority had sought to charge the entire fresh price of the land at current market rate. The Court there held this was impermissible because the purchaser of leasehold rights could only be subjected to the same terms as the original lessee, and there was no covenant to charge price again.
However, in the present case, BIADA was not demanding the market price of the land again. It was charging only transfer fee, in line with a policy decision applicable to all types of transfers. The Bench therefore held that the facts of Vikramshila Transformers were not parallel and that decision could not directly help the appellant.
The Bench then turned to the question of how the 15% should be applied. For this, BIADA relied on the Supreme Court judgment in Bihar Industrial Area Development Area Authority and Others v. Amit Kumar and Others, 2019 (10) SCC 733. In that case, a Division Bench of the Patna High Court had earlier held that BIADA could demand only 15% of BIADA’s own subsidized rate, not 15% of the circle rate. The Supreme Court set aside that view and upheld BIADA’s right to compute transfer fee on the basis of current market value (circle rate).
The Supreme Court reasoned that, for original allotments, BIADA charges a fixed price. But when an allottee transfers the plot and realises higher value at current market rates, there is no reason why the owner of the land, BIADA, should not benefit from a share of the unearned increase.
In the present case, the appellant tried to distinguish Amit Kumar by saying that it concerned a voluntary transfer by the original lessee at a profit, whereas here the sale happened by auction through BSFC, enforcing a mortgage. He argued that in such forced sales, there is no “profit” by the lessee and no justification for BIADA claiming a share in any unearned increase.
The Bench examined the chart produced by BIADA’s counsel to understand the calculation. The land value had been assessed at the circle rate of Rs. 118.16 per acre. The transfer fee was calculated by taking 15% of the value of the land computed at Rs. 271.95 per sq. ft. This led to a figure of Rs. 1,71,329/-, which had been demanded and paid.
The Court found no arbitrariness in this method of calculation itself and accepted that BIADA could in principle charge 15% of the current market value as transfer fee, following its policy and the Supreme Court’s approval in Amit Kumar. Thus, the High Court did not accept the broader challenge to BIADA’s power to levy transfer fee or to adopt the circle rate for this purpose.
However, the Bench identified a different problem. While computing the transfer fee, BIADA had completely ignored the fact that only about 64 years of the 99-year lease remained. In the Court’s view, before fixing any amount on the basis of current market value, depreciation should be applied in line with how many years of the lease were still left.
Because this crucial factor was not considered at all, the Bench held that imposition of transfer fee of Rs. 1,71,329/- was not justified and showed non-application of mind to that aspect.
BIADA also argued that since the appellant had already paid the amount, even if under protest, he could not now question it. The Court firmly rejected this argument. It held that the very idea of conditional payment under protest is to allow a person to later challenge the levy before a competent forum.
In the final decision, the Court laid down two key points. First, BIADA is entitled to charge transfer fee at 15% of the current market value of the land with reference to the date of sale. Second, while doing so BIADA must account for depreciation because a shorter portion of the lease remains.
The appeal was disposed of with directions. The appellant was allowed to file a representation before the Chairman-cum-Managing Director of BIADA within 30 days. BIADA was directed to reconsider the transfer fee by taking into account the remaining lease period and to recalculate the amount accordingly. Any amount that ought to be reduced from the earlier sum already paid by the appellant must be refunded.
The Court also directed that the concerned BIADA authority should consider the matter in right earnest and take an informed decision within three months of receiving the representation. The Bench recorded its appreciation for the assistance of the amicus curiae, Ms. Shilpa Singh, and then disposed of the appeal.
Why This Judgment Matters
This judgment is important for buyers of industrial plots in Bihar, especially those who purchase leasehold land in auction from financial corporations like BSFC.
First, the Patna High Court has made it clear that BIADA can charge transfer fee at 15% of the current market value. Anyone taking over an industrial plot should expect this charge, even if the land is bought in a forced auction sale.
Second, the Court has protected buyers from being overcharged by insisting that BIADA must consider how many years of the original lease are left. A buyer should not pay transfer fee as if a fresh 99-year lease is being given when several decades have already passed.
Third, the Court has confirmed that payment made “under protest” does not close the door to legal challenge. People can pay to avoid business loss but still contest the amount before a court or authority later.
For small and medium industrial entrepreneurs, this ruling provides both a warning and a safeguard: transfer fee is lawful, but its calculation must be fair and linked to the remaining lease term.
Legal Issues and Answers
- Issue: Can BIADA charge transfer fee from an auction purchaser of leasehold industrial land, and on what basis should it be calculated?
Answer: Yes. BIADA is entitled to charge transfer fee at 15% of the current market value of the land as on the date of sale, in line with its policy and the Supreme Court ruling in Amit Kumar. - Issue: Was the specific transfer fee of Rs. 1,71,329/- correctly calculated and lawfully imposed on the appellant?
Answer: No. While the method based on 15% of market value was not arbitrary, BIADA failed to give depreciation for the fact that only about 64 years of the 99-year lease remained. Without such adjustment, the imposed amount was unjustified and requires reconsideration. - Issue: Does prior payment of the demanded fee under protest prevent the appellant from challenging it in appeal?
Answer: No. Payment made conditionally and under protest can still be questioned before a competent forum, and the levy can be re-examined and corrected.
Cases Cited by the Court
- M/s Vikramshila Transformers vs. State of Bihar, 1994 (1) PLJR 604 (Patna High Court), distinguished as not directly applicable.
- Bihar Industrial Area Development Area Authority and Others v. Amit Kumar and Others, 2019 (10) SCC 733 (Supreme Court), relied upon to uphold calculation of transfer fee on current market value.
Case Details
Case Number: Letters Patent Appeal No. 1294 of 2016 in Civil Writ Jurisdiction Case No. 13485 of 2013
Case Title: Ramjee Sah v. The State of Bihar & Ors.
Coram: Hon’ble Mr. Justice Ashutosh Kumar and Hon’ble Mr. Justice Anjani Kumar Sharan
Date of Judgment: 10.03.2022
Citation: 2022(2) PLJR 21
Advocates:
- For the Appellant: Mr. Manik Vedsen, Advocate; Mr. Subhash Chandra Bose, Advocate; Ms. Shilpa Singh, Amicus Curiae
- For the State: Mr. Prashant Kumar, AC to SC-05
- For BIADA (Respondent Nos. 2 and 3): Mr. Lalit Kishore, Senior Advocate; Mr. Yashraj Bardhan, Advocate
- For Bihar State Financial Corporation (BSFC): Mr. Raj Nandan Prasad, Advocate
Nature of the Case: Letters Patent Appeal against dismissal of writ petition challenging demand of transfer fee by BIADA in relation to an industrial leasehold plot purchased in auction from BSFC.
Link to the Judgment: Patna High Court Judgment – L.P.A. No. 1294 of 2016
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