Financial Assistance To Private Arbitral Institution Can’t Be Perpetual: Telangana High Court Annuls Govt Orders Allotting Land To IAMC Led By Retired SC Judges & CM
The Telangana High Court remarked that despite the annual financial assistance of Rs. 3 crores for a continuous period of 3 years, the IAMC has not been able to sustain itself.
Justice K. Lakshman, Justice K. Sujana, Telangana High Court
The Telangana High Court has set aside the Government Orders (GOs) by which the State Government allotted land in favour of the International Arbitration and Mediation Centre (IAMC).
The Board of Trustees of IAMC comprises former Supreme Court judges, Justice B. Sudershan Reddy and Justice R.V. Raveendran, and the State Law Minister, who is also the Chief Minister, Anumula Revanth Reddy.
Two Public Interest Litigations (PILs) were preferred against the said GOs by which the land in Raidurg village, Sherilingampally mandal, R.R. District was allotted to IAMC and the State Government granted financial aid of Rs. 3 crores to IAMC and directed all its departments and public sector undertakings to refer all its disputes above Rs. crores to the IAMC for arbitration.
A Division Bench comprising Justice K. Lakshman and Justice K. Sujana observed, “At this stage, we would like to express our concern regarding the performance of the IAMC and its future. The statistics of the IAMC were placed before this Court. It was stated that as on 29.01.2025 only 15 arbitration cases were conducted by the IAMC. Out of the said 15 cases, 11 arbitration cases were conducted pro-bono. Likewise, only 57 mediation cases were conducted by the IAMC, out of which 17 were conducted pro bono. The abysmally low caseload raises concerns regarding the future sustenance of the IAMC on its own. The government, as a part of its policy, can provide financial assistance to a new institution like the IAMC. However, such financial assistance to a private arbitral institution cannot be perpetual.”
The Bench remarked that despite the annual financial assistance of Rs. 3 crores for a continuous period of three (03) years now and the provision of free office space, the IAMC has not been able to sustain itself nor does it show signs of financially sustaining itself in the future.
Koti Raghuntha Rao was the party-in-person. Senior Advocate Satyam Reddy and Advocate K.V. Rajasree appeared for the Petitioners. Advocate General (AG) A. Sudershan Reddy, Senior Advocates D. Prakash Reddy, Vikram Pooserla, Avinash Desai, G. Vidya Sagar, Advocates Mallipedi Abhinay Reddy, and K. Udaya Sri appeared for the Respondents.
Contentions
The entire case of the Petitioners was that the Government by issuing the impugned GOs has abused its powers and caused significant financial loss to the public exchequer. They contended that the subject land being very valuable could not have been allotted to the IAMC free of cost. According to them, the value of the subject land runs into hundreds of crores. They further contended that Sections 19 & 20 of the Telangana Urban Areas Development Act, 1975 provide that government land can only be disposed by way of sale or exchange or lease or public auction. According to them, there is no provision permitting the government to allot land free of cost, therefore, allotment of land to the IAMC is arbitrary.
On the other hand, the Respondents contended that the allotment of land in favour of the IAMC was justified on the ground that a high-level committee constituted by the Central Government had submitted its recommendations vide a letter in 2017 to promote institutional arbitration in India. They also stated that they had the power to allot the subject land under Section 25 of the Telangana Land Revenue Act, 1317 Fasli. They justified the allotment on the ground that the same was for a public purpose and permissible under the said Act. Referring to the trust deed, the IAMC highlighted that the Board of Trustees includes Supreme Court’s former judges i.e., Justice B. Sudershan Reddy and Justice R.V. Raveendran, the Law Minister for the State of Telangana as well as the Chief Minister for the State of Telangana i.e., Anumula Revanth Reddy.
Reasoning
The High Court after hearing the arguments from both sides, noted, “… though the IAMC (Respondent No. 4) contended that the Petitioners have no locus standi, the same was not seriously contested by them or any of the other Respondents. Further, considering the nature of the case and the contentions raised by the parties, this Court deems it appropriate to decide the present PILs on merits.”
The Court said that the alienation of state lands under Rule 3 of the Rules, 1975 in favour of a private body like the IAMC can only be done for a public purpose and after collecting the applicable market value.
“It is pertinent to note that the Supreme Court on multiple occasions has reiterated that executive power cannot be exercised contrary to any statutory provisions. … We would like to say that, even a bona fide allotment can be set aside, if it is in violation of the applicable procedure”, it further noted.
The Court also pointed out that matters involving allotment and distribution of state largesse cannot be done free of cost and the Governments shall ensure that they are adequately compensated for parting with natural resources vested in them and held by them in public trust.
“Unless the purpose of allotment is greater and such allotment is to an institution or person who earns no profit, free allotment of government largesse cannot be justified”, it added.
The Court, therefore, held that the impugned GO was issued contrary to Rule 3 of the Rules, 1975 and hence, the allotment of subject land free of cost to the IAMC is unsustainable and contrary to the procedure.
“Likewise, the allotment could not have been done in favour of the IAMC which was not registered as a company under the Companies Act. … We would also like to point out that the conduct of the government in allotting the land was unduly hasty. It is noteworthy that possession certificate was issued in favour of the IAMC even before formulating and communicating the terms of allotment. Such hasty decisions do not bode well and often result in exercise of power contrary to the procedure. Discretionary exercise of power shall not only be fair and transparent, but also should be seen to be fair and transparent”, it remarked.
The Court, however, was of the view that the impugned GOs providing financial aid and referring government disputes to the IAMC are in line with the broad policy of the government to promote alternative dispute resolution.
“As stated above, where policy decisions are involved, it is for the concerned government to decide how a particular policy is to be supported and promoted. It is in the wisdom of the government to provide financial assistance to an institution like the IAMC formed to reduce pendency of litigation and to make Hyderabad a business-friendly city and a commercial destination. As far as the intent of the government to support the IAMC financially is concerned, the same is justified and we find no arbitrariness in the said decision”, it further observed.
Conclusion
Moreover, the Court said that initial support to the IAMC is justified, however, continuous and perpetual financial assistance to such institutions may not be financially viable and prudent for the State Government.
“We hope that the IAMC does not go the ICADR way. … Therefore, we direct the Government of Telangana to review the performance of the IAMC annually and get its accounts audited by the Principal Accountant General (Audit), Telangana or any other competent officer. We also suggest the Government of Telangana to ensure that any release of funds after the five (05) year period as mentioned in the MoU dated 27.10.2021, is subject to the performance of the IAMC”, it directed.
The Court clarified that it is for the government to decide which forum it wants to approach to get its disputes redressed and the government’s decision to refer all its disputes above Rs. 3 crores to the IAMC for arbitration is a matter of policy.
“We cannot adjudicate the wisdom of the government. However, as public money is involved, we would like to sound a note of caution. We hope that the government examines the costs incurred by it by referring its cases to the IAMC. In case, the government finds that the cost of arbitration through the IAMC is higher and is causing significant burden on the exchequer, it may alter the policy”, it concluded.
Accordingly, the High Court partly allowed the PILs, set aside the GOs allotting land to IAMC, and upheld the GOs related to providing financial aid to IAMC.
Cause Title- Koti Raghunatha Rao v. The State of Telangana (Case Number: W.P.(PIL) NOs.76 AND 79 OF 2023)
