Chhattisgarh HC Upholds Lease Cancellation for Balod Municipal Council but Quashes Criminal Proceedings Against President and CMO
The High Court affirmed cancellation of IDSMT scheme plot allotments made in breach of lease terms, but quashed criminal proceedings against municipal officials for a collective council decision.
The High Court of Chhattisgarh at Bilaspur has delivered a split verdict in five connected writ petitions challenging a State Government order dated 10 January 2018 that cancelled lease allotments made by the Municipal Council, Balod under the Central Government’s Integrated Development of Small and Medium Towns (IDSMT) scheme and directed criminal prosecution of its then President and then Chief Municipal Officer. Justice Amitendra Kishore Prasad, sitting singly, upheld the lease cancellation and the forfeiture of amounts paid by private allottees, finding clear departures from the conditions of the lease deed. However, the judge quashed the direction to initiate criminal proceedings against the two officials, holding that individual criminal culpability cannot be extracted from what was, in law, a unanimous collective decision of the entire municipal body.
The Dispute Before the Court
The IDSMT scheme was formulated by the Central Government in the Sixth Five-Year Plan, around 1979–80, to slow rural-to-urban migration by developing smaller towns. A revised project prepared by the Municipal Council, Balod was approved by the Union Ministry of Urban Affairs and Employment on 6 April 1999. The component of residential plot development remained incomplete and a revised Detailed Project Report was sanctioned by the Town and Country Planning Organisation on 1 December 2006.
On 10 June 2008, the Collector, District Durg sanctioned government land at Khasra No. 918/1, Patwari Halka No. 5/1, measuring 22.02 acres, to the Municipal Council, Balod. The Council deposited the requisite payment on 2 July 2008. On 17 September 2008, a lease deed was executed between the State of Chhattisgarh and the Municipal Council for this land, with a total premium of Rs. 9,59,192/- and an annual rent of Rs. 47,960/-, for a period up to 31 March 2038.
The Council’s meetings of August and September 2008 passed unanimous resolutions to auction the plots and to use the auction proceeds for employee salaries, electricity dues, and basic civic amenities. The State Government approved the auction on 20 July 2009. Nearly nine years later, by its order dated 10 January 2018, the State Government reversed course: it cancelled the lease and patta granted to the Municipal Council, directed recovery of funds diverted to various accounts, and ordered that criminal cases be registered against the then CMO, Toran Singh Thakur, and the then President, Rakesh Yadav.
Five writ petitions followed. The allottees who had received plots filed WPC No. 461/2018, WPC No. 492/2018, and WPC No. 743/2018, challenging the cancellation of their allotments. Toran Singh Thakur filed WPS No. 1699/2018 and Rakesh Yadav filed WPC No. 489/2018, each challenging the direction for criminal prosecution. An interim order dated 28 February 2018 had already restrained coercive steps against the two officials.
The Competing Legal Arguments
Mr. Rajeev Shrivastava, Senior Advocate, appearing with Ms. Anu Mishra, Advocate for the then CMO and then President, argued that the allotments were not individual acts but collective corporate decisions of the full municipal body, including the President, Vice-President and Councillors. Revenue was used to pay salaries, electricity arrears and civic amenities — necessary statutory obligations. He contended that the State, having itself approved the auction, could not then characterise its own approved action as an illegality. Individual liability, he submitted, could not be imposed on two persons for a resolution carried unanimously by the entire Council.
Mr. Awadh Tripathi, Advocate for the private allottees, separately argued that the plots had been allotted after payment of lease rent in good faith, and that no opportunity of hearing was given to the allottees before cancellation. This, he submitted, violated the principles of natural justice and audi alteram partem.
Mr. Anand Dadariya, Deputy Advocate General for the State, countered that the lease deed of 17 September 2008 was specific: land was granted only for construction of residential houses to be allotted to eligible beneficiaries under the IDSMT scheme; sub-leasing without the Governor’s prior permission was prohibited; funds could not be diverted outside scheme purposes; and any violation would result in immediate cancellation with forfeiture of all structures and amounts, without compensation. The Council, he argued, had allotted bare, undeveloped plots rather than constructing houses, and had diverted funds to purposes entirely outside the lease agreement. Both the cancellation and the criminal direction were therefore valid.
How the Court Reasoned on Lease Cancellation
Justice Prasad examined the lease agreement dated 17 September 2008 in detail. The court found it beyond dispute that the lease mandated construction of residential houses for allotment exclusively to scheme-eligible beneficiaries. The agreement prohibited use for any commercial purpose. It expressly provided that violation of any condition would result in cancellation, with forfeiture of constructed structures and all articles on the land, without any right to compensation or reclamation.
The court rejected the petitioners’ argument that the State’s own post-auction approval neutralised the contractual breaches. It held that parties are bound by their agreement in letter and spirit; a subsequent approval or even the consent of authorities to a deviation cannot alter or override the original contractual terms. The terms remain valid and binding, and any deviation empowers the appropriate authority to cancel the agreement on its own terms.
On the facts, the court found two clear contractual infractions. First, the Municipal Council allotted undeveloped plots of vacant land to private allottees instead of constructing residential houses, which was the express mandate of the lease. Second, the funds received from those allotments were spent on salaries, electricity bills and civic amenities — purposes neither envisaged nor permitted by the agreement — without prior permission of competent authorities.
In that context, the natural justice argument advanced by the allottees did not alter the outcome on cancellation. The court affirmed the State’s cancellation order and held that all allotments stood cancelled. Amounts paid by allottees as premium, deposit or otherwise were held forfeited to the State under the default clauses of the lease, without any right of refund or reclamation. The allottees were, however, declared free from any liability for further recovery.
Why Individual Criminal Liability Could Not Survive
The court treated the question of criminal prosecution of Toran Singh Thakur (then CMO) and Rakesh Yadav (then President) as a separate legal issue. Here, the analysis turned on collective institutional decision-making.
The court examined the documentary record and found that the decision to divert auction proceeds towards salaries, electricity bills and amenities was not taken by either official acting alone. It was adopted through a unanimous resolution of the entire body of office-bearers — the President, Vice-President and Councillors — acting as a collective. Justice Prasad held that where a resolution represents a joint decision of the entire municipal body, individual liability cannot be restrictively imposed on only two of its members.
The court drew on the Supreme Court’s ruling in Ravi Yashwant Bhoir v. District Collector, Raigad (2012) 4 SCC 407, where the Supreme Court held, at paragraph 66, that a tender accepted by the Council through collective consensus after due deliberation could not be treated as an individual decision of the President alone. A Division Bench of the Chhattisgarh High Court in Smt. Soni Ajay Banjare v. State of Chhattisgarh (WA No. 109/2026, decided on 5 February 2026) had restated this principle: individual liability cannot be imposed unless there is a specific finding of dominant role, mens rea, or manipulation of the decision-making process.
Applying these principles, Justice Prasad held that the diversion of funds was a collective responsibility shared by all Council members who voted for the resolution. A collective corporate decision cannot be converted into an individual criminal culpability. The impugned order, insofar as it directed initiation of criminal proceedings against Toran Singh Thakur and Rakesh Yadav, was accordingly quashed.
Outcome
WPC No. 461/2018, WPC No. 492/2018, and WPC No. 743/2018 filed by the private allottees were dismissed. The cancellation of their allotments was affirmed. All amounts paid by them stand forfeited to the State without any right of refund. The land, which counsel confirmed remains entirely vacant with no construction raised, may now be resumed by the State Government and utilised for any permissible purpose in accordance with law.
WPC No. 489/2018 and WPS No. 1699/2018 filed by the then President and then CMO were partly allowed. The two officials shall not be held individually or personally liable. The direction in the 10 January 2018 order to register criminal cases against them is quashed.