The Cochin Port Trust’s (CPT) agreement to lease out 26 acres of prime land at Bolgatty island to a private developer is fraught with infirmities that can adversely impact the port’s absolute rights over the land. The agreement allows the developer to pledge the leased land with banks to raise money.

The lease deed signed between the CPT and the developer on July 26, 2011 allows the corporate house to seek loans or “create charge” against the property from commercial banks and Central financial institutions.

“The lessee (the developer) shall not create any charge in respect of the lease hold interest relating to the property described in the schedule hereto vested in it as well as the building constructed on the same without the prior written consent of the lessor, it being clearly understood that such consent will not be granted, except in the case of charges in favour of commercial banks and State and Central financial institutions,” says Section 3 (e) of the lease document.

Also see - Port gets just Rs.71 crore for a deal to build flats worth Rs.1,000 crore

Lawyers point out that this clause in the agreement can lead to loss of land for the port if the developer fails to repay its loans. Since the land can be used as collateral security for loans, it is open to the banks to attach this piece of property if the developer fails to repay the loan. The 26 acres of waterfront property off Marine Drive cost about Rs.500 crore in the open market. The port leased out this property to the developer for Rs.71 crore.

Section 100 of the Transfer of Properties Act speaks about charge on immovable properties.

According to the Act, “where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.”


Interestingly, the agreement also permits the unauthorised sub-leasing of the land or buildings by the developer to third parties without even informing the port. The CPT has offered to make post facto approvals of such unauthorised deals by the developer.

According to Section 3 (b) of the deed, “in the event of the lessee effecting any such sub-lease without the prior consent in writing of the lessor for the same, it shall be open to the lessor to approve of the same if a request therefore is made, provided, the lessee pays the lessor during the subsistence of such unauthorised assignment, transfer or sub-lease additional amount as detailed below.”

In case of default of the measly Rs.1.05 lakh annual lease by the developer, the CPT cannot even recover the amount as it has not insisted on any security deposit though the lease deed states that the rent dues shall be recovered from the deposit.

Section 1 (c) of the deed refers to a security deposit, but shockingly it says Rs. nil.

The lessee “has deposited with the lessor as security deposit towards the rent an amount of Rs. nil (Rupees nil)... if the lessee defaults in payment of the rent at anytime, necessary adjustments may be made by the lessor from the amount in deposit and the lessee shall make up the corresponding deficit in the deposit.”

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