Shyam Investment vs Appropriate Authority

K.A. Swami, C.J.—W.A. No. 215 of 1994 - W.A. No. 215 of 1994 is preferred against the order dated 5-1-1994 passed by the learned Single Judge in Writ Petition No. 14089 of 1986. The learned Single Judge has held that the clarification contained in the judgment of the Supreme Court in C.B. Gautam Vs. Union of India and Others, would make inapplicable the principles laid down in the said decision, therefore, the writ petition is liable to be dismissed. Accordingly, it has been dismissed. Hence, the petitioner therein has come up in appeal. Facts necessary for the purpose of determining as to whether the view taken by the learned Single Judge is correct, are as follows:- The immovable property involved in the proceeding consists of land and building situate at 23, Padmavathiar Road, Royapettah, Madras. It consists of land measuring 3 grounds and 529 square feet and a building with a built-up area of 3,000 square feet. The petitioner-firm agreed to purchase the same under an agreement dated 24-10-1986 for a total consideration of Rs. 16,25,000 and paid a sum of Rs. 25,000 by way of advance by Cheque No. 662603 dated 24-10-1986 drawn on Indian Overseas Bank, Mylapore, Madras-4. There are other conditions contained in the agreement, which are not necessary for our purpose. Pursuant to the agreement, permission was sought for from the appropriate authority, but by the order u/s 269UD(1) of the income tax Act, 1961 (''the Act'') dated 9-12-1986, it chose to make pre-emptive purchase of the property. It is the validity of that order, which was challenged in Writ Petition No. 14089 of 1986. As already pointed out, the learned Single Judge has rejected it. Writ Petition No. 14089 of 1986 was filed on 22-12-1986. There was an interim order passed on 23-12-1986 restraining the respondents from dispossessing the respondents 2 and 3, who are the vendors. This interim order was again modified on 23-1-1987 and it was directed as follows :

"After hearing the counsel on both sides, the limited stay originally granted is modified and the stay is made absolute in the following terms:

Stay of further proceedings pursuant to the impugned order in AA/MDS/10 (51) /12/86-87 dated 9-12-1986.

The respondents will not be obliged to pay any amount towards the purchase consideration to the transferor during the pendency of the writ proceedings and the transferor will not be allowed to take any place of limitation at any stage for the non-payment of the consideration in terms of the provisions of sections 269UG and 269UH of the income tax Act, 1961.

The transferor and the transferee are restrained from making any change in the nature and character of the property or from dealing with or from disposing of or in any way encumbering the property in question, during the pendency of this writ proceedings."

Thereafter, there was another W.M.P. filed by the vendors seeking a direction to the purchaser or the appropriate authority to pay a sum of Rs. 16,00,000. That application was dismissed by the order dated 29-6-1987. There was an appeal preferred against the order dated 29-6-1987 in Writ Appeal No. 1637 of 1987. A Division Bench by the judgment dated 15-10-1987 held as follows :

"Appeal admitted.

Having regard to the facts of the case, it appears to us that the order of stay made absolute by the learned single Judge needs to be modified. The appellants, on the averments made in this appeal, entered into an agreement of sale of the property in question, as they had to repay large amounts to the Punjab and Sind Bank, Mount Road, Madras. They had borrowed monies from the Bank and had created a mortgage by deposit of title deeds in respect of the property in question. Now it is obvious that the controversy between the intending purchaser and the Central Government cannot be permitted to adversely affect the vendors. The vendors are ready and willing to sell this property to whoever of the two is found entitled to purchase. At the same time the interest of the vendors need be safeguarded and it is necessary to prevent any further increase in their liability which they owe to the Punjab and Sind Bank. The agreement of sale is for a sum of Rs. 16,25,000. Out of that, the intending purchaser had paid a sum of Rs. 25,000 as advance. The balance of Rs. 16,00,000 is to be received by the vendors on execution of the sale deed. That sale deed, however, cannot be executed by them in spite of their willingness to do so because the Central Government is now claiming a statutory right to purchase the property in question. It would, therefore, be fair and just to direct the Central Government to pay a sum of Rs. 16,00,000 on behalf of the appellants to the Punjab and Sind Bank, Mount Road, Madras-2. Mrs. Nalini Chidambaram appearing for the department wants this order to be restricted to the facts of this case. She is justified in saying so because we are making this order having regard to the fact that the appellants'' liability to Punjab and Sind Bank is growing everyday for no fault of theirs. The Central Government shall forward to the appellants a xerox copy of the receipt issued to them by the Punjab and Sind Bank after the payment is made to the bank on their account. The payment will be within two weeks from today. We also make it clear that in case the original petitioner succeeds in his petition, the petitioner will be liable to pay the amount of Rs. 16,00,000 to the Central Government. Accordingly, the appeal stands disposed of. There will be no order as to costs. "

Thus, from what is stated above, it was clear that immediately within a week after the order of pre-emptive purchase was passed by the appropriate authority, the intending purchaser filed Writ Petition No. 14089 of 1986 before this Court on 22-12-1986 challenging the validity of the order directing him to purchase. The delivery of possession by the vendors to the appropriate authority and payment of a sum of Rs. 16 lakhs by the appropriate authority to the venders have taken place pursuant to the orders passed in the writ petition. As on the date when the writ petition was filed, except for passing the order to make a pre-emptive purchase no step had been taken pursuant to it. Neither the vendor, nor the purchaser had voluntarily agreed for handing over possession of the property in question to the appropriate authority. Of course, the vendors had sought for a direction to pay them the consideration amount. These facts are not in dispute. It is in the background of these facts that we have to determine whether the principles laid down in C.B. Gautam''s case (supra) would be applicable to the case or else whether the case falls within the clarification contained in that decision. The clarification contained in C.B. Gautam''s case (supra) is as follows :

"We may clarify that, as far as completed transactions are concerned, namely, where, after the order for compulsory purchase u/s 269UD of the income tax Act was made and possession has been taken over, compensation was 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 this judgment will invalidate the purchases." (p. 562)

It is contended by Mr. N.V. Balasubramanian, the learned junior standing counsel for income tax Department, that as on the date the writ petition came up for hearing, the vendors had delivered the possession of the immovable property in question and had also received the consideration amount from the appropriate authority on their own accord by obtaining a direction from the Court. There- fore, the case falls within the aforesaid clarification as the possession had been taken over by the appropriate authority and compensation had been paid.

On the contrary, it is contended by the learned counsel for the appellant that the intending purchaser has immediately challenged the order directing pre-emptive purchase within a week from the date of the order and the rest of the events, viz., delivery of possession by the vendors to the appropriate authority and payment of the balance of consideration amount by the appropriate authority to the vendors, have all taken place, pursuant to the direction issued by this Court that in the absence of such a direction in the light of the interim order of stay passed at the instance of the writ petitioner it was not at all possible to obtain possession from the vendors and to pay the balance of consideration amount of Rs. 16 lakhs to them by the appropriate authority. The events that have taken place pursuant to the orders of the Court should not be construed so as to affect the interest of the writ petitioner. In support of this plea, the learned counsel has also placed reliance on a decision of a Division Bench of Karnataka High Court in Appropriate Authority and others Vs. Mass Traders Pvt. Ltd. and others, . The learned junior standing counsel for income tax placed reliance on a Division Bench decision of this Court in K.K. Anandan Ammal v. Union of India [Writ Petition No. 10963 of 1987, dated 7-4-1994].

On a careful consideration of the clarification contained in C.B. Gautam''s case (supra) and also on going through the entire decision in that case, we are of the view that the said clarification cannot be made applicable to a case in which the order of pre-emptive purchase is challenged immediately after the order is passed and before the delivery of possession by the vendors and receiving of consideration amount from the appropriate authority. In addition to this, in this case, delivery of possession and receiving of the balance of consideration amount are subject to the result of the writ petition as has been ordered in the judgment passed in Writ Appeal No. 1637of 1987,dated 15-10-1987. This is clear from the last portion of the order extracted earlier which has been italicised by us. There is also another principle that the orders of the Court passed pending final adjudication shall not be interpreted to cause prejudice to any of the parties as the same would always be subject to the final adjudication unless otherwise specifically ordered. Therefore, when the delivery of possession and payment of consideration amount have taken place, pursuant to the order of Court and subject to the result of the writ petition, such an event cannot be interpreted as an event which had taken place voluntarily so as to bring the case within the clarification contained in C.B. Gautam ''s case (supra). Therefore, we are of the view that in the facts and circumstances of the case, it is not possible to apply the clarification. In addition to this, it may also be noticed that in that very clarification itself, it has been stated by the Supreme Court that the compensation amount is paid to the owners of the property and accepted without protest. Here, the amount has been accepted subject to the result of the writ petition under the order of the Court. Therefore, looked at from any point of view, it is not possible to bring the case within the purview of the clarification contained in the judgment in C.B. Gautam''s case (supra).

In the case of Mass Traders (P.) Ltd. (supra), a Division Bench of the Karnataka High Court has taken a view that the clarification does not cover the case pending on the date the judgment of the Supreme Court in C.B. Gautam''s case (supra) was delivered. On the facts and circum stances of this case, as stated above, we consider that we need not go to that extent in this case and hold that the clarification will not apply to cases which were pending on the date on which C.B. Gautam''s case (supra), was decided. In addition to this, it may also be pointed out that though the Supreme Court has dismissed the SLP filed against the judgment in Mass Traders (P.) Ltd. ''s case (supra), it has nevertheless left open all other points decided therein.

The decision of a Division Bench of this Court in K.K. Anandam Ammal''s case (supra) stands on the facts stated in that case. That was a case in which the writ petition was filed not only after the delivery of possession by the owners of the property pursuant to the order of pre- emptive purchase, but also subsequent to the sale of that property in public auction and further sale of the same by the auction purchaser. Under those circumstances, it was held that the clarification contained in C.B. Gautam''s case (supra) was applicable and as such, the rule laid down in C.B. Gautam''s case (supra) was not applicable and as such, the decision of the appropriate authority was not liable to be interfered with.

6.1 For the reasons stated above, the writ appeal is entitled to succeed.

The next question for consideration is as to what direction should be issued in the case. As a result of allowing the writ appeal and setting aside the order of the learned single Judge and quashing the pre-emptive purchase order the matter has to be remitted to the appropriate authority. As the position stands, the property in question is in the possession of the appropriate authority and the owner has received the full consideration amount of Rs. 16,25,000 out of which Rs. 25,000 is paid by the intending purchaser as an advance. Consequently, the owner of the property will not be any more interested. It is the intending purchaser who has to pursue the remedy. In the event the appropriate authority holds in favour of the intending purchaser, there must be an assurance that he would be immediately able to pay the consideration amount. Secondly, in the event the appropriate authority decides to make pre emptive purchase of the property, the appropriate authority will not be required to pay any further amount to the vendors who have already received the consideration amount. It has also to pay a sum of Rs. 25,000 to the intending purchaser which amount he has paid as advance towards the agreed consideration amount of Rs. 16,25,000. In the event, the appropriate authority decides in favour of the intending purchaser and thereby permits the sale, the intending purchaser is required to pay the interest on the consideration amount of Rs. 16 lakhs from February 1988 till the date of the order at the rate of 12 per cent per annum.

Accordingly, the writ appeal is allowed. The order dated 5-1-1994 passed in Writ Petition No. 14089 of 1986 is set aside. The writ petition is allowed. The order of pre-emptive purchase dated 9-12-1986 passed by the Ist respondent is quashed. The matter is remitted to the appropriate authority with a direction to consider the permission sought for by the intending purchaser and the owner in accordance with law and in the light of the principle enunciated in C.B. Gautam''s case (supra). The appellant shall furnish security by way of bank guarantee to the satisfaction of the appropriate authority for a sum of Rs. 16 lakh within 4 weeks from today. In the event the appropriate authority decides to grant permission for sale in favour of the intending purchaser, the appropriate authority can encash the bank guarantee towards the recovery of the amount paid by it to the vendors. The intending purchaser shall also pay interest on the sum of Rs. 16 lakhs from February 1988 till the date of order granting permission for sale at the rate of 12 per cent within a period of 3 weeks from the date of such order. In the event the appropriate authority directs pre-emptive purchase of the property, the bank guarantee shall stand cancelled and the appropriate authority shall pay Rs. 25,000 to the intending purchaser-petitioner. There shall be no order as to costs.

W.A. No. 216 of 1994:

It is not necessary to consider this case in greater detail, because the judgment delivered by us in Writ Appeal No. 215 of 1994 will cover this appeal also and along with that appeal, this writ appeal has been posted and both the appeals are heard together. Accordingly, following the said judgment, this writ appeal is allowed. The order dated 5-1-1994 passed by the learned Single Judge in Writ Petition No. 234 of 1987 is set aside. The writ petition is allowed in the following terms:

(i) The order dated 9-12-1986 passed by the 1st respondent-appropriate authority u/s 269UD(1) is hereby quashed.

(ii) The case is remitted to the appropriate authority for fresh consideration in the light of the principles laid down in C.B. Gautam ''s case (supra).

(iii) The intending purchaser, viz., the appellant shall furnish security by way of bank guarantee to the satisfaction of the appropriate authority for a sum of Rs. 14,25,000 within four weeks from today. In the event, the appropriate authority decides to grant permission for sale as per the agreement of sale in question, the bank guarantee can be encashed by the appropriate authority. In addition to that, the appellant shall pay interest to the appropriate authority on the sum of Rs. 14,25,000 from 9-2-1987 till the date of the 6rder at the rate of 12 per cent per annum in 3 weeks from the date of the order. In the event the appropriate authority directs preemptive purchase of the property, the bank guarantee shall stand cancelled. However, there shall be no order as to costs.