New Delhi, April 7: The Supreme Court today ruled that the division bench of Calcutta High Court had erred when it cleared the sale of 300 cottahs of “surplus land” owned by the ailing Sur Enamel and Stamping Works to the Purnendu Chatterjee-owned Chatterjee Management Services to enable the latter to set up a software park in the city.

The landmark ruling is expected to set a precedent for ailing units in Bengal, which have been trying to unlock capital locked in their surplus land to finance revival plans.

A two-member Supreme Court bench of Justices K.G. Balakrishnan and P. Venkatarama Reddi said the division bench of Calcutta High Court had “out-stepped the limits of its jurisdiction and passed orders of an extraordinary nature” when it approved the sale of surplus land of approximately 20,000 square metres at 21 Sil Lane and 24 Christopher Road to Chatterjee Management Services for Rs 3.90 crore.

The state government had refused to grant exemption under Section 20 of the Urban Land Ceiling Act and ordered Sur Enamel to hand over possession of the vested land on September 15, 1995.

Two months later, it confirmed that the land now vested with the state government.

Sur Enamel, which suspended operations in 1991, had wanted to sell the surplus land and pay off its creditors, including United Bank of India (UBI) with which the assets of the company were mortgaged.

Under the plan cleared by the high court in January 1996, Sur Enamel was to pay Rs 1.80 crore to UBI, Rs 60 lakh to the workmen and an equal amount to Eastern Coal Agency, another creditor.

The division bench of the court had said the deal was a win-win situation for everyone and ought to be cleared “in view of the fact that the state is facing an acute unemployment problem. Here is an industrialist who has come forward with an offer which ... appears to be very ... lucrative and which will serve the interest of the workmen (and) ... liquidate the creditors’ dues... (it) is also in public interest to accept ...the offer.”

The high court also rejected the state’s contention that it could not grant an exemption under the Land Ceiling Act after the vesting of the land.

The Supreme Court upheld the state government’s appeal and said the high court had erred when it said the government had rejected the Sur Enamel request on the basis of “unknown guidelines”.

“The high court was not justified in describing them as ‘unknown guidelines’ because the orders containing the guidelines were very much on record,” it ruled.

The apex court said the division bench of the high court had been “largely influenced” by the proposal receiving “the imprimatur of the court”.

“In fact, the holding of the division bench that the excess land ought to have been exempted was in the context of the effectuating the said proposal accepted by the court,” the two judges of the apex court said.

“We deem it appropriate to consider whether the acceptance of the proposal involving the sale of the company’s surplus land to CMS Ltd and the consequential directions issued by the high court are supportable in law,” said the Supreme Court.