Change in Shareholding Does Not Constitute Transfer of Government-Allotted Land: Commentary on Tata Communications Ltd v. State of Maharashtra (Bombay High Court, 2025)

Change in Shareholding Does Not Constitute Transfer of Government-Allotted Land: Commentary on Tata Communications Ltd v. State of Maharashtra (Bombay High Court, 1 December 2025)

I. Introduction

The decision of the Bombay High Court in Tata Communications Limited v. State of Maharashtra & Ors. (Writ Petition No. 362 of 2015, judgment dated 1 December 2025, per Khata J.) is a significant addition to Indian jurisprudence on:

  • the legal distinction between change in shareholding and transfer of underlying assets of a company, particularly in the context of government land grants and disinvestment;
  • the limits of government power to levy “unearned income/increment” based on alleged breach of land grant conditions;
  • the scope of show cause notices and the requirement to disclose all material relied upon; and
  • the model litigant obligation of the State, including the propriety of awarding substantial costs against the government for defending untenable proceedings.

At the heart of the dispute lay a demand of approximately ₹26 crores raised by the State of Maharashtra as “unearned income” on the footing that:

  • construction on government-allotted land was delayed,
  • the land had been “transferred” without permission, and
  • the land had been used for purposes other than those sanctioned.

The State argued that, following the disinvestment of Videsh Sanchar Nigam Limited (VSNL) and its eventual name change to Tata Communications Limited (TCL), there had effectively been a transfer of the land or an interest therein, attracting an unearned income clause under the government grant.

The Court, after an exhaustive consideration of precedent and principle, rejected this position and laid down an emphatic rule:

A change in shareholding pattern, even one which shifts control from Government to a private entity, does not by itself amount to a “transfer of land” or “transfer of an interest in land” under a government grant, so long as the corporate entity holding title to the land remains the same.

Additionally, the Court found multiple violations of natural justice, criticized the State for defending an indefensible case, and imposed ₹25 lakhs in costs on the State, coupled with strong observations on the need for a rational government litigation policy.

II. Background and Facts

1. Parties

  • Petitioner: Tata Communications Limited (TCL), formerly Videsh Sanchar Nigam Limited (VSNL) – a public limited company incorporated under the Companies Act, 1956.
  • Respondents:
    • State of Maharashtra (through the Revenue Minister),
    • Additional Commissioner, Konkan Division,
    • Collector, Mumbai Suburban District,
    • Tahsildar (Revenue), Andheri, and
    • Government of Maharashtra (Housing & Special Assistance Department).

2. Origin of the Property and Corporate Structure

The dispute concerned land admeasuring 3947.37 sq. m. at Bandra, Mumbai (Survey No. 341, CTS No. 629 (part)), referred to in the judgment as the “writ land”.

  • The writ land was allotted by the State of Maharashtra to Overseas Communication Services (OCS), then a department under the Ministry of Telecommunications (Government of India), for construction of staff quarters.
  • On 27 March 1986, the Government of India, by office memorandum, transferred the management, control and operations of OCS, including its assets and liabilities, to VSNL, a company incorporated on 19 March 1986.
  • The final allotment order for the writ land was issued on 27 March 1992 in favour of OCS.
  • On receipt of the allotment, VSNL requested mutation of the property card in its name (reflecting the earlier transfer of OCS assets to VSNL).
  • Construction of two staff quarters buildings began in 1992 and was completed in 1998; the BMC issued an Occupation Certificate on 24 July 1998.

Subsequently, under the Central Government’s liberalization and disinvestment policy:

  • The Government of India sold part of its shareholding in VSNL to a Tata Group company and other investors over time.
  • The Tata Group eventually acquired a majority stake.
  • On 20 January 2008, the name of VSNL was changed to Tata Communications Limited (TCL). The corporate entity remained the same; only the name and shareholding changed.

3. Conditions of the Grant and “Unearned Income”

The grant to OCS contained typical restrictive conditions often found in government land grants:

  • Purpose clause: Land to be used for construction of staff quarters.
  • Non-transfer clause (Clause 4): The grantee and its “executors, administrators, and approved assignees” shall not transfer the land or any interest therein without prior written consent of the Government.
  • Unearned income clause (Clause 7): In the event of a transfer, the State would be entitled to a portion of the “unearned increment” – i.e., the increase in land value attributable to State actions (e.g., development, infrastructure), not the grantee’s efforts.

In 2011–2012, the State claimed that these conditions had been breached, triggering liability to pay unearned income of ₹26,06,74,446.

4. Show Cause Notice and Orders

On 25 March 2011, the Collector issued a Show Cause Notice (SCN) to OCS/VSNL. The grounds cited were:

  1. Delay in construction: Construction was allegedly not completed within two years of allotment.
  2. Transfer without permission: The writ land was allegedly transferred without prior permission, violating Clause 4 of the grant.
  3. Misuse: The land was allegedly used for purposes other than those sanctioned, without permission.

TCL replied, stating inter alia:

  • There was no transfer of land; only the name of the company had changed.
  • Construction was completed by 1998 and BMC had issued an Occupation Certificate.
  • The land was still used as staff quarters, consistent with the original purpose.

Despite this, the following orders were passed:

  • 11 April 2012 (Collector): Without affording TCL a proper hearing, imposed liability of around ₹26 crores as unearned income, finding:
    • Construction was completed belatedly (in 1998 instead of within two years),
    • No extension had been sought, and
    • There was a “transfer” from VSNL to TCL without permission.
  • 16 January 2013 (Additional Commissioner): Dismissed TCL’s appeal without reasons, upholding the Collector’s order.
  • 1 June 2014 (Revenue Minister): Rejected TCL’s revision/appeal, holding that:
    • Although the land was not directly transferred,
    • The change in shareholding—Government reducing its stake to ~26.12%, TCL holding ~48.87%, balance with financial institutions—created an interest in the land in favour of TCL without State permission,
    • This amounted to a “transfer of land” or “interest in land” in breach of the grant.

Additionally, the Collector’s order referred to a “Report submitted by the Enquiry Officer”, which was never furnished to TCL.

TCL thereafter approached the Bombay High Court in writ jurisdiction. Interim protection was granted in 2014; the petition was admitted and the impugned orders were stayed in 2016. The final judgment was delivered on 1 December 2025.

III. Summary of the Judgment

The High Court allowed TCL’s writ petition and granted relief in terms of the main prayers, with costs. The key conclusions are:

  1. No transfer of land or interest in land occurred.
    • A change in shareholding resulting from disinvestment and a change of company name from VSNL to TCL does not amount to a transfer of the writ land or any interest therein.
    • The corporate entity remained the same; its assets, including the writ land, were never transferred to any other juridical person.
    • Shareholders do not own the company’s assets; they have only a right to:
      • dividends when declared, and
      • residual assets upon winding up.
  2. All three grounds cited in the Show Cause Notice failed on merits.
    • Delay in construction: Any alleged breach was hopelessly time-barred; construction had been completed and an Occupation Certificate issued in 1998, yet action was initiated only in 2011–2012. No explanation for such delay was offered.
    • Misuse of land: No material evidence was produced to show that the land was used for a purpose other than staff quarters. This ground was unsubstantiated.
    • Transfer without permission: On settled law, share transfers and disinvestment did not amount to a transfer of VSNL’s immovable property.
  3. Serious breach of principles of natural justice.
    • The Enquiry Officer’s report, explicitly referred to and relied upon by the Collector, was never supplied to TCL.
    • The Assistant Commissioner’s appellate order was unreasoned, yet the Revenue Minister did not set it aside.
    • Crucially, the Revenue Minister upheld the demand on a new ground (change in shareholding creating an interest), which was not mentioned in the Show Cause Notice. Introducing new reasons at the adjudicatory stage is impermissible and violates natural justice.
    • An unfair trial at the original stage cannot be cured by a theoretically “fair appeal.”
  4. Gotan Limestone distinguished.
    • The Supreme Court’s decision in State of Rajasthan v. Gotan Lime Stone Khanji Udyog Pvt. Ltd. was held inapplicable because:
      • That case involved a partnership converting into a company and then selling 100% shares where the only significant asset was the mining lease; the transactions were structured to effect a de facto sale of the mining lease in violation of law.
      • Here, the land was one of many assets of VSNL; the disinvestment process was a public policy measure, and the Union Government still retained a substantial shareholding (~25%).
      • There was no evidence of a device or sham to circumvent restrictions on transfer of the land.
  5. Show Cause Notice must contain all grounds and material.
    • Reasons or grounds absent from the SCN cannot be imported later into the decision.
    • All material relied upon for the decision (like the Enquiry Officer’s report) must be disclosed at the show cause stage; mere assertions by the authority that such material is not “relied upon” are insufficient if the material is clearly relevant.
  6. State’s conduct criticised; heavy costs imposed.
    • The Court condemned the State for defending orders that were patently contrary to binding precedent and for dragging the petitioner into prolonged litigation (nearly a decade).
    • Reiterating the doctrine that the Government must act as a “model litigant”, the Court imposed ₹25,00,000 in costs on the State, payable to TCL within four weeks.
    • The Court suggested that the State consider setting up screening committees (ideally with retired High Court judges/Senior Advocates) to vet potential litigation and defences.

IV. Detailed Analysis

A. Core Legal Issues

  1. Whether a change in shareholding and control of VSNL, pursuant to Government disinvestment and its subsequent name change to TCL, amounted to a “transfer” of the writ land or an “interest” therein in breach of the government grant.
  2. Whether the levy of unearned income was valid when:
    • the Show Cause Notice did not mention the change in shareholding as a ground;
    • key materials (like the Enquiry Officer’s report) were not disclosed; and
    • appellate orders were unreasoned.
      •
    • Whether long-delayed action (more than a decade after completion of construction) could validly be taken for alleged delay in construction.
    • What standard of conduct is expected of the State as litigant, particularly in light of known binding precedent.

B. Precedents Cited and Their Influence

1. On Shareholders’ Rights vs Company’s Property

(i) Bacha F. Guzdar v. Commissioner of Income Tax (1955) 1 SCR 876

This seminal Supreme Court decision underpins the entire reasoning on corporate personality. The Court in Bacha Guzdar held that:

“The company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders… The interest of the shareholder either individually or collectively does not amount to more than a right to participate in the profits of the company… He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole.”

Khata J. quoted Bacha Guzdar extensively to reaffirm that:

  • A shareholder does not own the company’s property.
  • Even a 100% shareholder cannot claim a proprietary right in specific assets of the company.
  • Therefore, even dramatic changes in shareholding (including disinvestment by the Government) do not result in transfer of the company’s immovable assets in law.
(ii) Balco Employees Union v. Union of India (2002) 2 SCC 333

Balco involved the disinvestment of Bharat Aluminium Company (BALCO). Employees argued that disinvestment indirectly violated protections relating to transfer of land to non-tribals. The Supreme Court held that:

“Change of management or in the shareholding does not imply that there has now been any transfer of land from one company to another… Even if BALCO had been a non-public sector undertaking, the transfer of land to it was not in violation…”

This directly supported TCL’s case:

  • If there was no new transfer of land when shares in BALCO were privatised, there likewise could be no “transfer” of the writ land merely because VSNL’s shareholding changed and its name became TCL.
(iii) M/s Din Chemical & Coating Pvt. Ltd. v. State of West Bengal (2012 SCC OnLine Cal 10950)

The Calcutta High Court held that transfer of shares in a company holding leasehold land does not amount to a transfer of the leasehold interest in land itself. This case drew on Bacha Guzdar and applied it in the context of government leases and transfer fees.

Khata J. quoted the key passage:

“With the transfer of the share by the promoter shareholder to the present shareholder… the leasehold interest of the company was not transferred… The petitioner-company which obtained the said lease… still remains the lessee… The restrictive clause regarding transfer of the leasehold interest… does not attract in the present case.”

This is almost a mirror-image of TCL’s situation: the company remains the same lessee; only the shareholders change. Hence, the unearned income demand was analogous to an impermissible demand for “transfer fees” on share sales.

(iv) International Hospital (P) Ltd. v. State of U.P. (2003 SCC OnLine All 1220)

The Allahabad High Court, dealing with NOIDA’s policies, explained “change in constitution” and reiterated that:

“It is well-settled that a company is a distinct legal company separate from its shareholders… Hence, if the shares of a company are transferred, it does not mean that the legal entity of the company is changed.”

Thus, a lessee-company remains the same entity despite internal changes in shareholding. This reinforced that there had been no “change in the legal entity” holding the writ land, merely a rearrangement of ownership of its shares.

(v) Great Eastern Shipping Co. Ltd. v. ONGC (2005) 3 Mh.L.J. 824

The Bombay High Court, citing Bacha Guzdar, clarified that shareholders cannot seek injunctions in respect of company property as if it were their own; the company alone is the owner. This supported the general doctrinal backdrop of distinct corporate personality.

(vi) Economic Investment Corporation Ltd. v. CIT (1969 SCC OnLine Cal 57)

This case addressed change of name of a company. It held that changing the name does not create a new legal person; the company before and after the change is the same juristic entity. The Court observed that no “succession” under tax law occurred, as there was no change in the legal person.

Applied here, VSNL and TCL are the same company; only the label changed. The ownership of the writ land thus continued uninterrupted in the same juristic entity.

(vii) W.H. Targett (India) Ltd. v. S. Ashraf (2008 SCC OnLine Cal 384)

Again dealing with change of name, the Calcutta High Court held explicitly that:

“This is not a case of transfer of interest in property from one person to another. The property was purchased by [Company A]. The name of [Company A] was changed to [Company B]. The property is still retained by the company… As this is not a case of transfer, the… Court had no occasion to consider the applicability of sections 5 and 6 of the Transfer of Property Act.”

Khata J. cited this to reinforce the proposition that a mere change of corporate name is not a transfer of property. The State’s reliance on the Transfer of Property Act (TPA) to argue otherwise was therefore misplaced.

2. The State’s Reliance on Gotan Limestone and Its Rejection

State of Rajasthan v. Gotan Lime Stone Khanji Udyog Pvt. Ltd. (2016) 4 SCC 469

The State relied heavily on Gotan Limestone to argue that, despite the formal position that only shares were transferred, the substance of the transaction was a transfer of mining lease rights contrary to statutory restrictions.

In Gotan:

  • A partnership firm held a mining lease.
  • The firm was converted into a company (with the same partners as shareholders/Directors) with government permission.
  • Subsequently, 100% of the shares of the company were sold to another entity for significant consideration.
  • The Supreme Court held that, looking at the “real nature” and “combined effect” of the transactions, they amounted to an indirect sale of the mining lease, which was not permissible. The lessee had achieved indirectly what it could not do directly.

Khata J. distinguished Gotan on two principal grounds:

  1. Asset profile: In Gotan, the mining lease was effectively the only meaningful asset. Here, VSNL/TCL is a large telecom company with multiple assets; the writ land is one of many assets, not the sole or core asset.
  2. Context and purpose: In Gotan, the structuring through incorporation and subsequent sale of shares was a device to effect a de facto transfer of the mining lease for consideration, in breach of statutory and contractual restrictions. In the present case:
    • The change in shareholding occurred under a national disinvestment policy.
    • The Union of India transparently divested its stake in VSNL; Tata Group acquired shares from the Government and the market.
    • The Union Government still retains a 25% stake in TCL.
    • There is no evidence of any sham or contrivance specifically aimed at alienating the writ land.

Thus, Gotan was found inapplicable. The State’s attempt to analogise share sales in a large, diversified telecom company to the sale of a mining lease-holding shell was rejected.

3. On Show Cause Notices, Disclosure of Material and Natural Justice

(i) 63 Moons Technologies Ltd. v. Union of India (2019) 18 SCC 401

The Supreme Court held that an authority must:

  • disclose all material relied upon in the Show Cause Notice, and
  • give the noticee a real opportunity to respond.

Khata J. cited this to hold that:

  • The ground of change in shareholding pattern—later used by the Revenue Minister as the main justification—was **never mentioned** in the SCN.
  • Therefore, TCL was never put on notice that this would be the foundational basis for demanding unearned income.
  • This alone rendered the impugned orders unsustainable.
(ii) T. Takano v. SEBI (2022) 8 SCC 162

The Supreme Court in T. Takano elaborated on the obligation to disclose material relevant to the decision:

“A quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication… The actual test is whether the material that is required to be disclosed is relevant for purpose of adjudication. If it is, then the principles of natural justice require its due disclosure.”

Applying this:

  • The Collector’s order explicitly referred to a “Report submitted by the Enquiry Officer” as a basis for decision.
  • This report was clearly relevant and had a nexus with the final order.
  • Yet, it was never supplied to TCL – a clear breach of natural justice under Takano.
(iii) ICAI v. L.K. Ratna (1986) 4 SCC 537

The Supreme Court in ICAI v. L.K. Ratna stressed:

  • The need to provide the Enquiry Committee report to the delinquent member.
  • The requirement that the Council (disciplinary authority) must give reasons for its finding.

Khata J. drew from this reasoning to hold that:

  • Even where the statute or rules are silent, the principles of natural justice must be read in.
  • Failure to supply a report and failure to provide reasons in appellate orders vitiate the process.
(iv) Tilak Chand Mangatram Obhan v. Kamla Prasad Shukla & English decision in Leary v. National Union of Vehicle Builders (1970) 3 WLR 434

TCL relied on the proposition that a flawed trial cannot be cured by a fair appeal. In Leary, Megarry J. famously observed:

“If the rules and the law combine to give the member the right to a fair trial and the right of appeal, why should he be told that he ought to be satisfied with an unjust trial and a fair appeal? … As a general rule, at all events, I hold that a failure of natural justice in the trial body cannot be cured by a sufficiency of natural justice in an appellate body.”

The Supreme Court in Tilak Chand and in Rattan Lal Sharma adopted this principle. Khata J. applied it to the present case, holding that:

  • Since the Collector’s process itself was tainted (non-disclosure, lack of hearing),
  • and the Assistant Commissioner’s order was unreasoned,
  • the later attempt by the Revenue Minister to justify the demand on new grounds could not cure the earlier violations.

4. On the State as a Model Litigant and Costs

(i) Key Supreme Court authorities

Khata J. invoked a line of Supreme Court decisions emphasising that the Government is “no ordinary party” and must behave as a model litigant:

These decisions insist that:

  • The State must not raise technical or frivolous defences to defeat just claims.
  • It must concede well-founded claims instead of forcing citizens into litigation.
  • Wasteful litigation by the State is itself a public wrong, as it consumes public funds and judicial resources.
(ii) Recent Bombay High Court decision: Yuvraj Vasantrao Pandhare v. State of Maharashtra (2024)

The Court referred to its own earlier decision reiterating that:

  • The State enjoys the “dubious distinction” of being the largest litigant.
  • There is an urgent need for a litigation policy anchored in fairness, settlement and responsibility, not adversarial obstinacy.

In TCL, this context framed the Court’s view that:

  • The State had ignored clear binding precedent on share transfers and corporate property.
  • It had nevertheless persisted in defending the impugned orders.
  • This justified the imposition of hefty costs (₹25 lakhs) to “jolt” the authorities out of entrenched apathy and misuse of public funds.

C. Legal Reasoning of the Court

1. Corporate Personality and Non-Transfer of Assets

The Court’s central legal reasoning rests on three pillars:

  1. Separate corporate personality:
    • A company is a distinct juristic person, separate from its shareholders.
    • Shareholders have no direct proprietary interest in the company’s assets.
    • Therefore, transfer of shares (even majority or 100%) does not by itself transfer ownership of immovable property held by the company.
  2. Unchanged identity of the land-holding entity:
    • The land was originally allotted to OCS, and OCS’s assets were transferred to VSNL in 1986 by Government decision.
    • Subsequently, VSNL’s name changed to TCL in 2008.
    • At no point was there a registered conveyance or other instrument transferring the writ land from VSNL/TCL to any other juristic entity.
    • Therefore, the company that owned the land remained the same throughout.
  3. Transfer of property under the Transfer of Property Act (TPA):
    • Section 54 TPA (and general property law) requires that transfer of immovable property above ₹100 must be through a registered instrument between two parties.
    • No such instrument exists transferring the writ land.
    • Even apart from TPA, the general principle is that no property passes merely by change in shareholding.

Although the State attempted to rely on the Government Grants Act, 1895 and argued that TPA requirements are displaced, that contention was largely irrelevant to the core point: what, in law, constitutes a transfer of land or interest in land? The Court’s answer is clear: not a mere change in shareholders.

2. Government Grants, “Interest in Land” and Broad Interpretation

The State contended that the grant’s restrictive clauses should be broadly interpreted:

  • “Interest in land” should include not only legal title but also control, occupation, and beneficial ownership.
  • By acquiring majority shareholding, TCL allegedly acquired such beneficial control over the land.

The Court rejected this argument on both legal and factual grounds:

  • Legally, control of a company via shareholding is not the same as ownership of a particular asset.
  • Factually, the land continued to be used as staff quarters—the very purpose for which it was allotted.
  • There was no allegation or evidence of TCL treating the land as its own personal property in a way inconsistent with VSNL’s corporate ownership.

While it is true that in some situations (as in Gotan) courts may look to the substance over form and pierce corporate structures to prevent abuse, the Court emphasised that such an approach presupposes:

  • a deliberate device or sham transaction intended to defeat the law or the terms of the grant; and
  • a strong factual basis to treat the share transaction as equivalent to an outright sale of the encumbered asset.

Neither condition was satisfied here.

3. Limitation, Delay and Laches

On the ground relating to delay in completion of construction:

  • Possession was handed over around 1985.
  • Construction was completed and OC issued in 1998.
  • The SCN was issued only in 2011, and orders in 2012–2014.

The Court held that:

  • The ground of delayed construction was barred by limitation and laches.
  • The State had acquiesced in the construction and occupation for over a decade.
  • No explanation for the long silence was offered.

Further, the impugned order(s) did not even ultimately rely on this ground as the main basis for imposing unearned income; they shifted focus to the alleged “transfer” via shareholding.

4. Misuse of Land – Absence of Evidence

As to the allegation that the land was put to a purpose other than staff quarters:

  • The State produced no documentary evidence to support the claim.
  • Given that the BMC had issued an OC for residential construction and there was no contrary material, this ground was held to be unsubstantiated.

5. Natural Justice: SCN, Disclosure and Reasoned Orders

Multiple violations of natural justice were identified:

  1. New grounds beyond the SCN:
    • The SCN did not state that:
      • disinvestment or change in shareholding pattern, or
      • creation of beneficial interest in TCL as a majority shareholder,
      would constitute a breach.
    • Yet, the Revenue Minister treated these as the main grounds for upholding the demand.
    • This violated the settled rule that grounds not set out in the SCN cannot be subsequently introduced at the adjudication stage.
  2. Non-disclosure of Enquiry Report:
    • The Collector’s order expressly relied on an Enquiry Officer’s report.
    • That report was never furnished to TCL, preventing it from commenting on or rebutting its contents.
    • This clearly violated the principle in T. Takano and general principles of natural justice.
  3. Unreasoned appellate order:
    • The Additional Commissioner’s order dismissing TCL’s appeal was virtually bereft of reasons.
    • A reasoned order is a fundamental requirement of fairness; its absence reinforces the conclusion that the process was defective.
  4. Unfair trial cannot be cured by fair appeal:
    • Drawing from ICAI v. L.K. Ratna, Tilak Chand, Leary and Rattan Lal Sharma, the Court held that:
      • When a decision at the original stage is vitiated by serious procedural defects,
      • a later appellate hearing—even if more compliant with procedure—cannot cure the fundamental illegality.

6. The Court’s Systemic Critique and Costs

The judgment went beyond the immediate controversy and issued systemic observations:

  • Given long-settled law on corporate personality and share transfers, the State’s position was plainly unsustainable.
  • Yet, the State:
    • initiated belated proceedings,
    • ignored binding Supreme Court authorities, and
    • continued to defend the impugned orders even after the writ petition was filed.
  • This conduct caused:
    • significant costs and uncertainty for TCL, and
    • unnecessary burden on the court system and the public exchequer.

The Court therefore:

  • Imposed ₹25,00,000 in costs on the State, payable to TCL within four weeks of the judgment’s upload.
  • Suggested that the State consider:
    • Establishing a screening or advisory committee (preferably including retired High Court judges and Senior Advocates) to:
      • review proposed litigation and defences, and
      • filter out weak or untenable cases at the threshold.
    • Institutionalising a procedure requiring officers to seek such guidance before defending contentious actions in court.

V. Impact and Significance

1. Clarification of Law on Share Transfers and Government Land Grants

The judgment reaffirms, in the specific context of government land allotments and unearned income clauses, that:

  • Transfer of shares, even controlling shares, does not amount to transfer of land or an interest in land.
  • Change of company name does not create a new legal entity or transfer property.
  • Unless the landholding corporate entity itself changes (through, e.g., amalgamation, slump sale, direct conveyance), the conditions against transfer in land grants are not triggered by mere share sales.

This is especially important for:

  • Privatisation and disinvestment transactions where public sector undertakings hold significant land under government grants.
  • Mergers & acquisitions of companies with land allotted by the government, as it prevents the State from re-characterising share deals as property transfers without explicit contractual support.

2. Drafting and Interpretation of Government Grant Conditions

The decision implicitly signals to governments that:

  • If the State intends to restrict changes in shareholding, management or control of a corporate allottee, such restrictions must be:
    • clearly and expressly stated in the grant or lease conditions, and
    • drafted with precision to cover the desired events (e.g., change in control clauses, lock-ins, prior approval requirements for disinvestment, etc.).
  • Court will not extend generic “no transfer” clauses to capture indirect or collateral changes in the corporate structure of the allottee, absent clear wording or evidence of a sham.

3. Strengthening Natural Justice in Administrative Adjudication

The judgment reinforces several procedural safeguards:

  • Show Cause Notices:
    • Must set out all material grounds and allegations.
    • The adjudicating authority cannot decide the matter on a different footing (e.g., change in shareholding) without first issuing a fresh notice or giving an opportunity to meet the new case.
  • Disclosure of Materials:
    • All investigation reports, enquiry findings or internal documents that influence the decision must be supplied to the noticee.
    • Authorities cannot circumvent this by simply stating they have “not relied” on those documents when the record suggests otherwise.
  • Reasoned Orders:
    • Appellate and revisional orders must be speaking orders showing due application of mind.
    • Non-speaking orders are vulnerable to being struck down, especially when they perpetuate procedural unfairness.
  • No cure through appeal alone:
    • Procedural defects in the initial adjudication—such as bias, non-disclosure, or refusal of hearing—cannot always be cured by an appellate procedure.

4. Government Litigation Policy and Costs

The imposition of ₹25 lakhs in costs and the Court’s detailed observations will likely:

  • Deter frivolous or poorly grounded litigation by State agencies, particularly in revenue and land matters.
  • Encourage the formation of internal or independent litigation vetting committees before:
    • raising legally tenuous demands, or
    • resisting well-founded petitions.
  • Remind government departments that public money funds litigation and courts expect:
    • adherence to precedent,
    • conciliatory disposition when claims are justified, and
    • avoidance of technical or obstructionist tactics.

If followed in spirit, this could reduce:

  • backlog of cases involving the State,
  • the financial and time burden on citizens and companies forced into unjust disputes, and
  • overall strain on judicial resources.

5. Practical Consequences for Corporates and PSUs

Companies (including former PSUs) holding land under government allotments may draw several practical lessons:

  • Share transactions per se are safe from being recast as “land transfers” absent:
    • explicit clauses in the grant, or
    • evidence of sham transactions akin to Gotan.
  • Where a government authority claims unearned income based solely on:
    • disinvestment,
    • change in control, or
    • change in company name,
    such claims can be robustly resisted on the corporate personality doctrine.
  • At the same time, companies must:
    • ensure continued compliance with the original usage covenants (e.g., using land for staff housing), and
    • promptly challenge any vague or overbroad show cause notices that hint at penal action without specifics.

VI. Simplifying Key Legal Concepts

1. “Transfer of Shares” vs “Transfer of Assets”

  • When you buy shares of a company, you are buying:
    • a slice of the company itself, not a piece of each asset it owns.
  • The company, as a separate legal entity, continues to own its property (land, buildings, licences, etc.).
  • Even if one person owns 100% of the shares, the company’s land is still owned by the company, not personally by that shareholder.

2. Unearned Income / Unearned Increment

  • Governments often allot land to entities at concessional rates, subject to conditions.
  • The land later rises in market value due to:
    • development of the area,
    • infrastructure created by the State, etc.
  • The increase in value attributable to these external factors is called “unearned increment” or “unearned income.”
  • Grant conditions may require that if the land is sold or transferred, the grantee must pay a share of this unearned increment to the State.

3. Government Grants Act vs Transfer of Property Act

  • The Transfer of Property Act, 1882 (TPA) is the general law on transfer of immovable property.
  • The Government Grants Act, 1895 allows the Government to:
    • issue grants (including leases) on terms that may override some TPA provisions.
  • However, even under Government Grants, basic concepts like:
    • what counts as a transfer of property, and
    • the need for clear legal conveyance between distinct entities,
    still operate unless explicitly modified.

4. Show Cause Notice (SCN)

  • An SCN is a formal document issued by an authority stating:
    • the alleged facts,
    • the proposed action (e.g., penalty, cancellation), and
    • the legal grounds relied upon.
  • It gives the recipient an opportunity to “show cause” why the proposed action should not be taken.
  • For the notice to be fair:
    • all essential allegations and reasons must be disclosed;
    • critical documents and reports should be supplied; and
    • the authority should decide the matter only on those disclosed grounds, unless a fresh notice is issued.

5. “Model Litigant”

  • This term refers to the notion that the Government, as a litigant, must set an example of fairness and responsibility.
  • It means the State should:
    • not raise unjust or technical defences to defeat lawful claims;
    • not prolong litigation needlessly;
    • respect binding precedent instead of contesting clear legal positions; and
    • seek to resolve disputes fairly, even at the cost of conceding mistakes.

VII. Conclusion

The Bombay High Court’s judgment in Tata Communications Ltd v. State of Maharashtra is a robust affirmation of foundational corporate and administrative law principles, applied to a modern context of disinvestment and government land grants.

The decision establishes and re-emphasises that:

  • Change in shareholding or control of a company—however substantial—does not by itself constitute a transfer of the company’s immovable property.
  • Conditions against transfer in government grants cannot be invoked merely because the State’s shareholding in an allottee company has reduced under a lawful disinvestment policy.
  • Administrative actions demanding huge sums as “unearned income” must:
    • be grounded in clear contractual breaches,
    • be initiated within a reasonable timeframe, and
    • scrupulously comply with the principles of natural justice.
  • Show cause notices must fairly disclose all grounds and materials; authorities cannot later sustain orders on undisclosed bases.
  • The State, as a model litigant, must refrain from defending orders that conflict with settled law and must internalise mechanisms to filter out weak or untenable cases.

By quashing the impugned orders, invalidating the demand of about ₹26 crores, and imposing substantial costs on the State, the Court not only provided redress to TCL but also sent a wider institutional message: government power in land and revenue matters is bounded by law, fairness and precedent, and cannot be stretched to penalise legitimate corporate restructuring or disinvestment.

The judgment is likely to serve as an important precedent in:

  • future disputes over government land allotted to corporates, especially former PSUs,
  • controversies about unearned income/unearned increment, and
  • the evolving jurisprudence on government litigation policy and cost sanctions against the State.

In sum, Tata Communications fortifies the separation between corporate shareholding and asset ownership, tightens the procedural discipline required of revenue authorities, and underscores the judiciary’s willingness to hold the State accountable—both in law and in costs—when it acts contrary to established legal principles.

Case Details

Year: 2025
Court: Bombay High Court

Judge(s)

HON'BLE JUSTICE KAMAL KHATA

Advocates

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