Telangana High Court: In the public interest litigations (PIL) challenging three Government Orders, whereby the Government of Telangana allotted land in favour of the International Arbitration & Mediation Centre, Hyderabad (IAMC) and also granted financial assistance for Rs. 3 crores to IAMC, the Division Bench of K. Lakshman* and K. Sujana, JJ, stated that the said land was allotted without calculating and collecting the market value. Further, as on the date of allotment, the IAMC was not registered as a ‘Company’. Therefore, the Court stated that the allotment of land in favour of IAMC is vitiated on account of non-compliance of the applicable rules.
Thus, the Court set aside the Government Order allocating land, free of cost, to IAMC, Hyderabad and further upheld the overnment Order for providing Rs. 3 crores as financial assistance and referring all government disputes above Rs. 3 crores to IAMC.
Background
A high-level committee constituted by the Central Government suggested that there is a need for an institution, similar to that of Singapore International Arbitration Centre (SIAC), London Court of International Arbitration (LCIA), Hong Kong International Arbitration Centre (HKIAC), etc. in India. Therefore, the IAMC was formed by a trust deed dated 20-8-2021, executed by the then Chief Justice of India. Pursuant to the said trust deed, a Memorandum of Understanding (MoU) was entered into between the State of Telangana and the IAMC, whereby it was agreed that the State will support the IAMC by allotting land.
The government subsequently passed, three orders in favour of IAMC i.e. for the free allotment of land, grant of financial aid of Rs. 3 crores and the direction of the state to all its departments and public sector undertakings, to refer its disputes above 3 crores to IAMC for arbitration.
The petitioner opposed such land allotment and contended that IAMC is not a statutory body, it is a private body making profits and enjoying grant-in-aid from the government. The petitioners contended that support of such private institutions is illegal and not supported by law.. Further, in relation to grant of financial aid and referral of disputes to IAMC, it was alleged that it would impose an undue financial burden on government exchequer, as IAMC charges huge fees for conducting arbitrations and mediations.
Analysis, Law, and Decision
The Court noted that the government enjoys discretionary power in policy matters related to land allotment and distribution of State largesse. While the grounds to challenge such policy decisions are limited, the Courts stated that it can interfere with a policy decision where the discretionary allotment of state largesse is patently arbitrary, marred with favouritism, grossly unreasonable, flagrantly discriminatory, and contrary to any applicable law.
A. Validity of Government Order allocating land to IAMC
The Court examined Section 25 of the Telangana Land Revenue Act, 1317 Fasli which provides the power of the government to assign lands for government or public purposes, and Rule 3(a) of the Rules, 1975, which states that land can be alienated in favour of a private individual, institution or company only after collecting the applicable market value. The Court further referred to Rule 3(b) of the Rules, 1975, which provides that no alienation in favour of a private individual, company or institution shall be considered unless the same is registered under the Companies Act, 2013.
The Court stated that the Rules, 1975 does not contemplate alienation of government land to a private body free of cost, also that the allotment in favour of a private body can only be made if such body is registered under the Companies Act. The Court stated that the said land was allotted without calculating and collecting the market value. Further, as on the date of allotment, the IAMC was not registered as a ‘Company’. Therefore, the Court stated that the allotment of land in favour of IAMC is vitiated on account of non-compliance of the applicable rules.
The Court stated that the conduct of government in allotting land was unduly hasty. The possession certificate was issued in IAMC’s favour 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. The Court stated that discretionary exercise of power shall not only be fair and transparent but also should be seen to be fair and transparent.
B. Validity of two Government Orders granting annual financial aid of Rs. 3 Crores to IAMC
The Court stated that the contents of high-level committee report made an emphatic case for providing governmental support to promote institutional arbitration in India. The impugned Government orders 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.
The Court stated that 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. Thus, the Court stated that the intent of the government to support IAMC financially is justified, and there is no arbitration in the said decision.
However, the Court stated that despite the annual financial assistance of Rs. 3 Crores for a continuous period of three years now and the provision of free office space, the IAMC had not been able to sustain itself nor did it show signs of financially sustaining itself in the future. The Court stated that such 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.
Therefore, the Court directed 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. Further, the Court suggested the Telangana Government to ensure that any release of funds after the five-year period as mentioned in the MoU, was subject to the performance of the IAMC.
C. Validity of Government Order altering dispute resolution policy
The Court took note of the Government Order, whereby the government altered its dispute resolution policy directing all its departments and public sector undertakings to refer all its disputes above Rs. 3 Crores to the IAMC for arbitration. The Court stated that it was a matter of policy, and the Court could not adjudicate the wisdom of the Government.
However, since the public money was involved, the Court hoped 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.
Thereby, the Court sets aside the government order allotting land free of cost to IAMC and upheld the order for providing Rs. 3 crores as financial assistance and referring all government disputes above Rs. 3 crores to IAMC.
[Koti Raghunatha Rao v. State of Telangana, 2025 SCC OnLine TS 384, decided on 27-6-2025]
*Order by- Justice K. Lakshman
Advocates who appeared in this case :
For the Petitioner: Satyam Reddy, Senior Counsel; K.V. Rajasree, Counsel.
For the Respondent: A. Sudershan Reddy, Advocate General; D. Prakash Reddy, Senior Counsel; Mallipedi Abhinay Reddy, Counsel.
