Rajasthan High Court Rules Against Unilateral Imposition of Annual Lease Rent

On November 6, 2025, the Rajasthan High Court delivered a landmark ruling that the state government cannot unilaterally impose an annual lease rent condition after a plot allotment auction has been completed. This decision was particularly significant as it addressed a long-standing issue that arose from an auction held in 1995.

The story begins on September 18, 1995, when the Rajasthan government issued an advertisement inviting bids for the auction of plots in the Market Yard, Sumerpur, on a 99-year lease. The individual who filed the case participated in the auction on September 29, 1995, after depositing an earnest money of Rs 10,000. As the highest bidder, he was allotted a shop/plot.

The bid was approved by the Director, Agriculture Marketing, with the condition that the allottees had to provide an undertaking to sign the lease deed according to the terms and conditions approved by the State Government and to get it registered. The plaintiff complied, submitted the undertaking, and was handed over the possession of the plot, where he began construction.

However, on June 21, 1998, nearly three years after the allotment, the plaintiff received a communication requiring him to execute the lease deed in a new format. This new format included a condition to pay an annual lease rent equal to 5% of the market value of the plot at the time of allotment, with a 25% increase every 15 years. Feeling burdened by this additional financial obligation, he filed a writ petition challenging this new condition.

On November 6, 2025, the Rajasthan High Court ruled in favor of the plaintiff. Avnish Sharma, Partner at Khaitan & Co, explained to ET Wealth Online: 'The Rajasthan High Court held that the State Government cannot impose a new annual lease rent on buyers of auctioned plots after the auction and allotment are complete, when no such condition was disclosed in the original auction notice.'

According to Sharma, the Krishi Upaj Mandi Samiti auctioned 99-year leasehold plots in 1995. The auction terms required bidders to pay a one-time premium but did not mention any recurring annual lease rent. The allotment was made subject to the buyer undertaking to sign the lease deed in the form prescribed by the Krishi Upaj Mandi Samiti.

The plaintiff succeeded in the case for three main legal reasons:

1. The Court found that the 1995 auction notice had complete and exhaustive terms, which did not include any annual rent. Once a public authority auctions land on stated terms and bidders pay based on those terms, those conditions become contractual and final. The State cannot unilaterally introduce fresh financial obligations afterwards. Imposing new conditions years later is arbitrary and violates promissory estoppel. 2. Buyers had already paid the premium, taken possession, and built shops. They had changed their position in reliance on the auction terms. Under the doctrine of promissory estoppel, the State cannot go back on its representation and add new burdens after the buyer has acted on the original promise. 3. Under the Transfer of Property Act, a lease can be granted for a one-time premium without recurring rent. The Court relied on Section 105 of the Transfer of Property Act, which recognizes leases granted for a premium alone, without rent. Since the auction was clearly for premium-based leases, the State had no authority to subsequently levy annual rent.

The Rajasthan High Court, in its judgment ([2025:RJ-JD:47315-DB]) dated November 6, 2025, observed that the central issue involved the validity of the condition incorporated in the lease deed proforma approved by the State Government. The conditions imposed after the auction required the allottees to pay annual lease money equivalent to 5% of the market value of the plot, with a 25% enhancement every fifteen years.

The Court noted that the auction notice dated September 18, 1995, issued by the Krishi Upaj Mandi Samiti, Sumerpur, did not contain any clause stipulating payment of annual lease rent or any recurring charge. The auction conditions were detailed and exhaustive, specifying the earnest money deposit, bid amount, and other incidental liabilities, but were silent on any further periodic payments.

After the completion of the auction, the bids were duly approved by the Director, Agriculture Marketing, and the possession of the allotted plots was handed over to the allottees, who also constructed shops and commenced business thereon. The subsequent communication dated July 21, 1998, issued nearly three years later, required execution of lease deeds in the new proforma containing the impugned clause (annual rent with increment), clearly seeking to impose an additional pecuniary burden beyond the contractual terms initially accepted.

The Court found that such unilateral alteration of the conditions after finalization of the auction is impermissible in law and contrary to the settled principles governing public contracts. The undertakings furnished by the allottees to execute lease deeds in accordance with the terms approved by the State Government cannot be construed as an unqualified consent to bear any subsequent financial burden not contemplated at the time of auction.

The Court also observed that the reasoning of the learned Single Judge, based on Section 105 of the Transfer of Property Act, 1882, is sound and well-founded. This provision makes it clear that payment of monthly or annual rent is not a necessary component of a valid lease, and leasehold rights can be transferred upon payment of a one-time premium. Once the auction was conducted and the full bid amount was realized, the transfer stood complete, and no further liability could be imposed retrospectively in the guise of rent.

The Rajasthan High Court affirmed the judgment and order dated October 8, 2009, passed by the learned Single Judge in S.B. Civil Writ Petition No. 3801/1998 (Bhai Shankar Lal Jawan Mal v. State of Rajasthan & Ors.) and other connected matters. The Court dismissed all the Special Appeals (Writ) filed by the State of Rajasthan and its functionaries, finding them devoid of merit.