Regularization of irregular land allotments is permissible over demolition where profound economic and social interests have crystallized.

In 2003, CIDCO (the New Town Development Authority for Navi Mumbai) approved the conversion of plots in Sector 30A, Vashi, from "Information Technology" use to commercial/residential use due to an IT sector downturn.

CIDCO allotted 29,000 sq. metres (the "subject plot") to the Appellant Developer via individual application rather than public tender at a rate of Rs. 10,250/- per sq. metre.

Public Interest Litigations (PILs) challenged this as irregular.

The Sankaran Committee (2005) found the allotment caused a loss of Rs. 50 crores to the public exchequer and recommended cancellation.

However, by 2014, the Developer had invested Rs. 450 crores to build a shopping mall and hotel, which have been operational since 2009, employing 8,000 people.

The Bombay High Court held the allotment illegal/arbitrary but granted liberty to apply for regularization.

The Developer appealed the High Court’s order directing the restoration of the land to its original condition (demolition).

The Court applied the Doctrine of Proportionality, which requires that the severity of a judicial remedy must bear a rational relationship to the wrong committed.

Regulation 4 of the New Bombay Disposal of Lands Regulations, 1975, which permits land disposal via individual applications at CIDCO’s discretion.

Under Article 14 of the Constitution, the court held that the principle of equality does not require unequals (commercial entities vs. housing societies) to be treated as equals.

The court established that for regularization of an illegal act, the entity must bear the full market cost of legality at the time of the court's judgment rather than historical concessional rates.

The Court reasoned that while the original allotment was irregular due to the lack of a competitive process, demolition after 17 years of operation would be "demonstrably contrary to public interest".

The Court applied the proportionality test, noting that demolition would waste a Rs. 450 crore investment, jeopardize 8,000 livelihoods, and lose Rs. 100 crores in annual tax revenue.

Connecting the law to the facts, the Court rejected the 2005 Sankaran Committee valuation (Rs. 50 crore loss) as it failed to account for land appreciation.

Instead, it adopted the Banthia Committee’s "prospective" approach, holding that regularization creates a fresh legal legitimacy requiring payment of the fair market value as of the date of the High Court’s judgment in 2014.

The Court dismissed the Developer’s plea for parity with housing societies, noting their vastly different financial capacities and commercial purposes.

It held that regularization is the appropriate remedy provided the Developer pays the full market value based on the 2014 Ready Reckoner rate (Rs. 54,400/- per sq. metre).

The Court ordered the Developer to pay a total of Rs. 318,31,37,664/- (inclusive of 8% interest from 2014 to 2026) plus Rs. 1 crore for failing to develop a mandatory garden.

Upon payment within four months, the allotment shall stand regularized; any dispute regarding encroachment on Plot No. 39/16 remains subject to pending High Court proceedings.