C.B. GAUTAM v. . UNION OF INDIA AND ORS.

A the explanation given by the intending purchaser or the -intending seller might be a somewhat limited one or a summary one but we di;:cline to accept the submission that the time lilll:it provided is so short as to preclude an enquiry or show cause altogether.

In the light of what we have observed above, we are clearly of the B view that the requirement of a reasonable' opportunity being given to the· concerned parties, particularly, the intending purchaser and the intending seller mus,t be road into the provisions of Chapter XX-C. in our opinion, before an order for compulsory purchase is made under Section 269UD, the intending purchaser and the intending seller must be given a reasonable c opportunity of showing cause against an order for compuls"ory purchase being made by the appropriate authority concerned. As we have already pointed out the provisions of Chapter XX-C can be resorted to only where there is a significant under-valuation of property to the extent of 15% or more in the agreement of sale, as evidenced by the apparent consideration being the lower than the fair market value by 15% or more. We have further pointed out that although a presumption of an attempt to evade tax may be raised by the appropriate authority concerned in case of the aforesaid circumstances being established, but such a presumption is rebutL table and this would necessarily imply that the concerned parties must have an opportunity to show cause as to why such a presumption should not be drawn. Moreover, in a given transaction of an agreement to sell there might be several bona fide considerations which might induce a seller to sell his immovable property at less than what might be considered to be the fair market value. For example; he might be in immediate need of money and unable to wait till a buyer is foun'd who is willing to pay the fair market value for the property. There might be some dispute as to the title of the · immovable property as a result of which it might have to be sold at a price lower than the fair market value or· a ·subsisting lease in favour of the intending purchaser. There might similarly be other genuine reasons which might have led the seller to agree to sell the property to a particular purchaser at less than the market value even in cases where the purchaser might not be his relative., Unless an intending purchaser or intending seller is given an 'opportunity to show cause against the proposed order for compulsory purchase, he would· not be in a position to rebut the presump- tion of tax evasion and to give an interpretation to the provisions which would_ lead to such a result would be utterly unwarranted. The very fact that an imputation of tax evasion arises where an order for compulsory

C.B. GAUTAM. v. U.0.I. [KANIA, CJ.] 45

purchase is made and such an imputation casts a slur on the parties to the agreement to sell lead to the conclusion that before such an imputation can be made against the parties concerned, they must be given an opportunity to show cause that the under-valuation in the agreement for sale was not with a view to evade tax. Although Chapter XX-C does not contain any express provision for the affected parties being given an opportunity to be heard before a~ order for purchase is made under Section 269UD, not to read the requirement of such an opportunity would be to give too literal and strict an interpretation to the provisions of Chapter XX-C and in the words of Judge Learned Hand of the United States of America "to make a fortress out of the dictionary." Again, there is no express provision in Chapter XX-C barring the giving of a show cause notice or reasonable c opportunity to show cause nor is there anything in the language of Chapter XX-C which could lead to such an implication. The observance of prin- ciples of natural justice is the pragmatic requirement of fair play in action .. In our view, therefore, the requirement of -an opportunity to show cause being given before an order for purchase by the Central Government is D made by an appropriate authority under Section 269 UD must be read into the provisions of Chapter XX-C. There is nothing in the language of Section 269UD or any other provision in the said Chapter which would negate such an opportunity being given. Moreover, if such a requirement were not read into the provisions of the said Chapter, they would be seriously open to challenge on the ground of violations of the provisions of E Article 14 on the ground of non-compliance with principles of natural justice. The provision that when an order for purchase is made under Section 269UD -- reasons rnust be recorded in writing is no substitute for a provision requiring a reasonable opportunity of being heard before such an order is made. F The recording of reasons which lea~ to the passing of the order is basically intended to serve a two-fold purpose:

(1) that the "party aggrieved" in the proceeding before acquires knowledge of the reasons and, in a proceeding G .... before the High Court or the Supreme Court (since there is no right of appeal or revision), it has an opportunity to demonstrate that the reasons which persuaded the authority to pass an order adverse to his interest were erroneous, irrational or irrelevant, and H . ,

46 SUPREME COURT REPORTS [1992] SUPP.3S,C.R.

A (2) that the obligation to rec:Ord reasons and convey the same to the party concerned operates as a deterrent against possible arbitrary action by the quasi-judicial or the executive authority invested with judicial powers.

Section 269UD(l), in express terminology, provides that the ap- B propriate authority may make an ord~r for the purchase of the property "for reasons to be recorded in writing", Section 269UD(2) casts.an obliga- tion on the authority that it "shall cause a copy of its order under sub-sec- tion (1) in respect of any immovable. property to be served on the transferor". It is, therefore, inconceivable that the order which is required c to be served by the appropriate authority under sub-section (2) would be the one which does not contain the reasons for the passing of the order or is not a·ccompanied by the reasons recorded in writing. It may be pe(mis- sible to record reasons separately but the order would be an incomplete order unless either the reasons are incorporated therein or are served separately along with the order on the affected party. We are; of the view, that reasons for the order must be communicated to the affected party.

We may also, in this connection, refer here to the decision of a Division Bench of the Madras High Court in Government of India and another v. Maxim A. Lobo and another, (1991) 190 I.T.R. 101 to which one of us. (Anand, CJ, Madras High Court, as he then was) was a party where a somewhat similar view regarding the requirement of compliance with principles of natural justice in making an order under sub-section (1) of Section 269UD has been taken. In so far as the decision of the Karnataka High Court in Vidyavati Kapoor Tntst v. Chief Commissioner of Income - Tax and others, (1992) 194 I.T.R. .584 takes a contrary view, it does not lay down the correct law.

We now take up the submissions of the learned counsel for the petitioner that the provisions of the said Chapter are arbitrary and violate the provisions of the Fundamental Rigbts Chapter insofar as an order for compulsory purchase under Section 269UD of the said Chapter has the effect of vesting the property in the Central Government free from all encumbrances or leasehold rights the value of which might not be reflected in the apparent consideration mentioned in the agreement for sale. It was submitted by him that these encumbrance holders and holders of leasehold rights might not have anything to do with the attempt at tax evasion in the

C.B. GAUTAM. v. U.0.1. [KANIA, CL] 47

intended sale, assuming that such an attempt is made by the intending seller or the intending purchaser by undervaluing the property concerned in the agreement for sale and yet they would be deprived of their valuable rights practically without any. compensation in the event of an order for compulsory purchase being made. In our view, the submissions of learned counsel are not without merit. U oder the provisions. of sub-section ( 1) of B Section 269UD on an order for purchase by the Central Government of a immovable property, the government would be liable to pay as compensa- tion to the owner of the property an amount equal to the amount of apparent consideration. Under the express provisions sub-section (1) of Section 269UE which we have set out above, in case an order for compul- c sory purchase is made under sub-section (1) of Section 269UD, the proper- ty in respect of which the order is made shall vest in the Central Government free from all encumbrances. (emphasis supplied)· Sub-section (2) of Section 269UE provides that the transferor or any other person who may be in possession of the immovable property in respect of which an order under sub-section (1) of Section 269UD ,3 made is required to surrender or deliver possession of the property to the appropriate authority or any other person duly authorised by the appropriate authority within 15 days of the service of the order on him. If there is a lessee in occupation of the property concerned, his leasehold rights would be destroyed and he would have to handover the possession of the property to the appropriate authority or any other person nominated by the appropriate authority. Similarly if an encumbrance holder like a usufructuary mortgagee were in occupation he would loss his valuable right to remain in possession and enjoy the usufruct. This clearly shows that an order for compulsory pur- chase result in the riglits of holders of encumbrances and leasehold rights being destroyed or significantly diminished. In a given case it might happen that the property is intended to be sold under an. agreement to sell subject to encumbrances and leasehold rights, and very often agreements to sell the immovable property do not provide that the property sold would be free from encumbrances or leasehold rights. In such a case, the apparent consideration, even if it is equivalent to the fair market value, would be indicative of the market value of the property subject to such encumbran- ces. If, in such a case an order for compulsory purchase is made, the result would be that the property would be compulsorily purchased and the amount to be paid for the purchase would be only equal to the apparent H

48 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A consideration and this apparent consideration would not take into account the value of the encumbrances on the property like mortgages and so on or the leasehold rights. It is well know that a property may be heavily encumbered and its value can be considerably depressed if it were sold subject to en.cumbrances. It is equally well known that a property in respect B of which term is a subsisting lease for a substantial period of time would fetch a comparatively lo\v. price because the purchase thereof would not carry with it the right to possession or occupation during the subsistence of the leasehold interests. In such cases, the amount to apparent considera- tion could be even less than the value of the encumbrances or the leasehold interests. An order for compulsory purchase in such cases would necessari- c ly result in gross injustice to the encumbrance holders and lessees and to their being deprived of their rights without their being in any way involved in the attempt at a tax evasion. It, therefore, appears to us difficult to uphold the last pa.rt of sub-section (1) of Section 269UE insofar as it provides that the property in respect of which an order under sub-section D (1) of Section 269UD in made shall vest in the Central Government free of . all encumbrances. In our opinion the expression "free of all enc~mbrances" is liable to be struck down as arbitrary, without any rational neXl!S with the object of the legislation in question and violative of Article 14 of the Constitution. Similarly the provisions of sub-section (2) of Section 269UE E set out by us earlier must be read down so as to make them inapplicable to bona fide lessees in possession or bona fide encumbrance holders in possession.

Our attention was drawn by learned counsel for the respondent to the judgment of a Division Bench of the Gujarat High Court in Rambhai manja Nayak v, Union of India, (1983) 142 I.T.R. 239. In that case the provisions of Chapter XX-A of the Income-tax Act came up for considera- tion before the Gujarat High Court. It was held that the scheme of Chapter XX-A is essentially to penalise the iax dodgers who seek to evade payment of tax by resorting to the dubious methods of undervaluation of properties under the instruments of transfer. It was held that under the provisions of the said chapter the property in question vested in the Central Government free from all encumbrances under the provisions of. sub-section ( 4) of Section 269 I. The Gujarat High Court took the view that it is only after all interests -- proprietary ,as well as possessory are extinguished on the 1 H acquisition of the property that the property vests absolutely in the Central ~·

C.B. GAUTAM. v. U.0.1. [KANIA, CJ.] 49

Government free from all encumbrances. In the context "encumbrances" A must be given the widest possible meaning and would certainly include leasehold or tenancy rights. It was submitted that the said decision lays down that although a property may be subject to encumbrances or leasehold interests it can be compulsorily acquired by the <:;:entral Govern- ment free from all encumbrances. In our view, the.aforesaid judgment is clearly distinguishable. The case before the Gu.iarat High .Co.urt was one B of compulsory acquisition as Chapter XX-A provided for compulsory acquisition of immovable· properties in the circumstances set out therein and that case cannot be compared with the case before us which is one of compulsory purchase by the Central Government which is in the nature of a pre-emptive purchase~ In case of pre-·em'ptive purchase of the type before c us what could be purchased was that whi!:;h was offered for sale and nothing beyond it.

It was submitted by learned Attorney General that the provisions of sub-section (1) of Section 269UD might be read down so as to inean that D the property compulsorily purchased under an order made under Section 269UD(l) would vest in the Central Government subject to bona fide encumbrances and leasehold interests subsisting thereon other than month- ly tenancies. It was urged by him that in a pre-emptive purchase normally what would be purchased is only that which was put up for sale or sold and, if the same principle was applied to the ·compulsory purchase by the E Central Government under Section 269UD, the rights of the emcumbrance holders and the holders of leasehold interests subject to which the property was agreed to be sold could be protected. We agree that in order to save a statute or a part thereof from being struck down it can be suitably read down. But such reading down is not permissible where it is negatived by F the express language of the statute. Reading down is not permissible in such a manner as would fly in the face of the express terms of the statutory provisions. In view of the expi:ess provision in Section 269UE that the property purchased would vest in the Central Government "free from all encumbrances" (emphasis supplied) it is not p9ssible to read down t~e. G section as submitted by learned Attorney General. In the result the .expres- sion "free from all emcumbrances" in sub-section (1) of Section 269UE is struck down and sub-section (1) of Section 269UE must be rea4 without I the expression "free from all encumbrances" with the result the property in question would vest in the Central Government subject to such encumbran- ces and leasehold interests as are subsisting thereon except for such of H

SUPREME COURT REPORTS (1992] S.LJPP. 3 S.C.R.

A them as are agreed to be discharged by the vendor before the sale is completed. If under the relevant agreement to sell the property is agreed t~ be sold free of all encumbrances or certain encumbrances.it would vest in the Central Government free of such encmnbrances. Similarly, sub-sec- tion (i) of Section 269UE will be read down· so that if the. holder of an encumbrance. or a lessee is in possession of the property and under the B agreement to s~ll the property it is not provided that the sale would be free of such encumbrances or .leasehold interests, the encumbrance holder or the lessee who is in possession will not be obliged to deliver the possession of the property to the appropriate authority or any person authorised by it and the provisions of sub-section (3) also would not apply to such persons. c If the provisions of Section 269UE are read down in the manner indicatec.I above then, in our opinion, the provisions of sub-section (6) of that section do not present any difficulty because the vesting iri the Central Government would be subject to such encumbrances and leasehold rights as stated earlier. D The next controversy posed was regarding the monthly tenancies. As far as monthly tenancies are concerned, they do not pose any difficulty because monthly tenants are also lessees in law although their right is a very limited one. If the agreement to sell does not provide for vacant possession or the determination of monthly tenancies such tenancies would E continue even on an order for purchase by the Central Government being made by Jhe appropriate authority concerned under Section 269UD(l); but such tenants would lose the protection given to tenants .. under ·the rent protection laws because such laws a:e not made applicable to prope'rties owned by the Central .Government with the result that thefr tenancies could F ,be terminated by the Central Government. The loss of the protection ·of the rent control acts cannot be regarded as an interest for which any compensation is liablf'. to be paid.

As we have stated earlier where an agreement for sale provides that the property is intended to be sold free of all encumbrances or leasehold rights, the order for purchase of such property under Section 269UD(l) in the said Chapter would result in the said property vesting in the Central Government free of such encumbrances or leasehold interests. In such a case the holders of the encumbrances and leasehold Interests would have to obtain their compensation from the amou~t awarded "as the purchase price to the owner of the property. This appears to be a fair construction

C.B. GAUTAM. v. U.0.1. [KANIA, CJ.] 51

because in such a case the apparent consideration can be expected to include the value of such leasehold interests or encumbrances. The holders of the emcumbrances and leasehold interests which would be destroyed in this manner can be said to be persons interested as contemplated in clause (e) of sub-section (2) of Section 269UA. In this connection, we may refer to sub-section (5) of Section 269UE which declares that nothing in the said section which deals with the vesting of prope~ty in the Central Government shall operate to discharge the transferor or any other person (not being the Central Government) from liability in respect of any encumbrances on the property and notwithstanding anything contained in any other law for the time being in force, such liability may be enforced against the transferor or such other person. This provision makes it amply clear that in the case c we have just referred to, the encumbrance holder or the holder of the leasehold rights could claim the. fair value of his encumbrance or the leasehold interest out of the amount paid on account of the purchase price to the owner of the immovable property acquired by the Central Govern- ment under Section 269UD. D . It was urged by learned counsel for the Revenue that in case a view is taken that the expression "free from all encumbrances" should be struck down it would be left open for an intending seller of immovable property to undervalue the property by creating a bogus lease or a bogus en- cumbrance thereon and this would defeat the purpose for which the E Chapter XX-C was introduced. We are unable to agree. If a lease or an encumbrance is found to be bogus it can be treated as of no legal effect and in that event it would not affect any of the rights of the Central Government on the vesting of the property in the event of an order for purchase being made under Section 269UD(l). If it is so considered F necessary the provisions of the Chapter might be so amended as to clarify that if any lease or encumbrance is created with a view lo defeat the provisions of Chapter XX-C such lease or encumbrance will be regarded as void or ignored for the purposes of the said Chapter. That, however, is for the Parliament to consider. G . This brings us to the question of relief. We find that the order for compulsory purchase under Section 269UD(l) of the Income Tax Act which was served on the petitioner in the night of 15th December, 1986, has been made without any show cause notice being served on the petitioner and without the petitioner or other affected parties having been H

52 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R

A given · ai:iy .opportunity to show cause against an order for compulsory purchase nor were the re.asons for the said order set out in. the order or communicated to the petitioner or other concerned parties with the ~rder. In view of what we have stated earlier .the order is clearly bad in law and it is set aside. . ··~ B The next question is as to the consequence to follow. In view of the fact that the object of the provisions of Chapter XX-C is a laudable object, namely, to counter ,evasion of tax in transactions of a sale of immovable property,. we consider it necessary to limit the retrospective operation of our judgment in such a manner as not to defeat the acquisitions altogether. c We find that if the original time frame prescribed in Chapter XX-C is rigidly applied it would not be possible for the appropriate authority concerned to pass an order under Section 269UD(l) at all in respect of the. property in question. In order to avoid that situation and, yet to en.sure that no injustice is caused to the petitioner, we order, in the facts and circumstances of the case, that the statement in Form 37-1 submitted by the petitioner as set out earlier shall be treated as if it were submitted on the date of the signing of this judgment. Thereafter if the. appropriate authority considers it fit, it may issue a show cause notice calling upon the petitioner and other concerned parties to show cause why an order for compulsory purchase of the property in, question should not be made under the provisions of sub-section (1) of Section 269UD and give a reasonable opportunity to the petitioner and such other concerned parties to show cause against such an order being made. In view of the limited time-frame this will have. to be done with a sense oft1~gency. If after such an oppor- tunity is give1.1 the appropriate authority so considers it fit, it may hold an inquiry, even. though summary in nature, and may pass an order for compulsory purchase by the Central Government of the property in ques- tion under Section 269UD(l). The appropriate authority will have to decide whether an inquiry is called for in the facts and circumstances of , the case after the show cause notice is issued. We are fortified in giving a somewhat limited retrospective operation of our judgment in view .of the decision by a Constitution Bench comprising five learned Judges of this Court in India Cement Ltd. v. State of Tamil Nadu, [1990) 1 SCC 12. In ·that case inspite of Section )55· of the Madras Panchayais' Act being declared ult!a vires, the State of Tamil Nadu. was held not liable to refund to the petitioners the cess co,lected by it under the provisions of the said section.

C.B. GAUTAM. v. U.O.l. [KANIA, CJ.] 53

We realise that if order for compulsory purchase of the property is made her(fafter the intending vendor will suffer to some extent by reason of the fact that he will get the purchase amount several years after the time he would have got it had the impugned order been held to be valid. But on the other hand, however, he would have retained the possession of the property in question. Taking into account these factors and taking note of the fact that the immovable prop~rties in urban areas have gone up steeply in value during the last few years, we direct that in case an order for compulsory purchase is made the Central Government shall pay to the intending seller the amount of the apparent consideration plus interest at 9 per cent per annum from the date the impugned order was made. c We may clarify that as far as completed transactions are concerned, namely, where after the order for compulsory purchase under Section 269UD of the Income Tax Act was made and possession has been taken over, compensation paid to the owner of the ·property and accepted without protest, we see no reason to upset those transactions and hence, nothing we have said in the judgment will invalidate such purchases. The same will be the position where public auctions have been held of the properties concerned and they are purchased by third parties. In those cases also nothing which we have stated in the judgment will invalidate the pur~hases.

In the result, the writ petition transferred is allowed to the extent aforestated. Considering the facts and circumstances of the case there will be no order as to costs.

ORDER

Union of India has moved this application for certain clarifications· F and directions with a view to obviating certain difficulties that it envisages in applying the principles laid down in the main judgment dated 17.11.1992 by the Constitution Bench to cases other than the case of the ·particular petitioner in that case. We have heard learned Solicitor General in support of this application. G

2. Our attention was drawn to two aspects: one in relation to the large number of similar petitions yet pending before this Court and the various High Courts where, in view of the subsisting orders of stay operat- ing therein, it would not be possible immediately to take steps and imple- ment the directions contained in the judgment within the time frame H

54 SUPREME COL'RT REPORTS [1992) SUPP. 3 S.C.R.

A stipula~(fd therein. The second aspect relates to pending matters before the authoriti~s, 'Vh_ich, though not pending before courts, do not also admit of applic~ti'on o( ~he· principles consistent with the statutory limit. After hearfng the leari:ed Solicit~r General, we are satisfied that the problems and qi~ficulties envisaged, in practical terms, are real. and require to be provided for. B . 3. T,he firs~ aspect arises out of the limited retrospectivity imported by the jtidgm~nt. The judgment provides that:

"in b~der to avoid that situation and, yet to ensure that no injustice is caused to the petitioner, we order, in the facts and circumstances of the case, that the statement in Form . 37-I ~itbmitted by the petitioner as set out earlier shall be treated as if it were submitted on the date of signing of ·this judgment." .

D · · Learned S~licitor General points out that in the cases where petitions are yet pending in this Court as well as in the various High Courts, the above direction becomes unworkable inasmuch as the interim orders sub- sisting in those petitions disable the authorities to carry'out the directions contained in the judgment within the stipulated time-frame and that, therefore, the directions as given in the judgment become impossible of E implementation. Learned Solicitor General suggests that, in order that the principles laid down in the judgment become workable in all other pending . cases before the courts, a clarification be made to the effect that in respect of all such cases pending before this Court' and the various High Courts, the time frame for affording of opportunity of being heard shall be reck- F. o~ed from the date of the a.ct'ual disposal of those matters by this.Court or the High Court, as the case may- be. . .

We think that this .clarification in the form of a further direction is '

necessary for a proper imp!ementation of the principles laid down in the judgment.

We, accordingly, clarify by this supplemental direction to be read as part of the judgment that in respect of cases other th~n that of petitioner - C.B. Gaµtam, the period of two months referred to in Section 269UD(l) shall be_ reckoned. with reference to the date of disposal of each of such pending matters either before this Court or before the High ca'urts as the.

C.B. GAUTAM. v. U.0.1. 55

case may be. Where, however, the stay orders inhibiting the. authorities from taking further proceedings are vacated, th~ period referred to in the said Section 269UD(l) shall be reckoned with reference to the date of such vacating of the stay orders. This clarification and further direction shall be supplemental to and be treated as parts of the main judgment.

4. The second clarification sought is in respect of matters pending before the authorities ·and which though not agitated in courts of law, are pending at various stages before the authorities in all such cases. We direct that Form 37-1 shall be deemed to have been filed as on the date of the judgment of this Court dated 17th November, 1992 for purposes of com- pletion of proceedir.gs in terms of Section 269UD(l). This further direction shall also be a part of the main judgment. c Certified copy of the main order as well as this order of clarification shall be made available to all those who seek such certified copies against payment.

G.N. Petition allowed.