High Court Of Madras
T. Amudha & Ors. vs. Appropriate Authority & Anr.
R. Jayasimha Babu & E. Padmanabhan, JJ.
Writ Petn. Nos. 4452 & 5100 to 5103 of 1993 and WMP Nos. 7192 & 8204 to 8211 of 1993
11th July, 2002
V. Ramachandran, for the Petitioners : T. Ravikumar, for the Respondents
R. Jayasimha Babu, J. :
The order of the Appropriate Authority, by which it directed the purchase of the plot measuring about fourteen and half grounds at No. 21, Haddows Road, Nungambakkam, which plot had been agreed to be sold to the petitioners by one Nagarathinam Mudaliar and his three sons under an agreement of sale deed dt. 9th Aug., 1989, has been challenged in these writ petitions. Form No. 37-I in relation to the property was filed on or immediately after the execution of the agreement. Thereafter, the matter appears to have developed complications, which has resulted in the matter still lying unresolved even after a span of thirteen years from the date of the agreement. In the agreement, it was stated that the vendors had entered into a partnership with one Bay Engineering Construction Co. and that the persons who had joined them in that partnership, who were not members of the vendorâs family had agreed to dissolve the firm. It was also stated that the petitioners before us were able to sort out the issues between the vendors under the agreement and those other partners who are not parties to the agreement. The price agreed for the property was Rs. 1,55,43,000. A sum of Rs. 10 lakhs was paid on the date of the agreement. It was mentioned in the agreement that there was encumbrance in the form of a decree obtained by a creditor bank of the vendors in C.S. No. 48 of 1972. The Appropriate Authority, after looking into that agreement, merely rejected that Form No. 37I. It also directed the Sub-Registrar not to register any sale deed regarding the property, until a no-objection certificate is issued by that Authority.
Thereafter, the petitioners filed a suit C.S. No. 198 of 1991 against the vendors and, in that suit, a compromise was arrived at, and a decree was made on 23rd April, 1991. Subsequently, a sale deed also was executed on 3rd Sep., 1991. In that sale deed, it is stated that the decree in the suit which was mentioned in the agreement to sell, had been purchased by one Farooq Maricar, and that the amount which the other persons who had been inducted as partners in Bay Engineering were willing to accept those partners being relatives of Maricar was a sum of Rs. 47 lakhs in the aggregate. It is also mentioned in that sale deed that the vendors were due to Udayar Investments and Consultancy Co. (P) Ltd. a sum of Rs. 72 lakhs which included the sum of Rs. 47 lakhs payable to Maricar and his relatives Iqbal and two others. That sum of Rs. 47 lakhs was withheld by the petitioners who are the purchasers. A sum of Rs. 25 lakhs was also retained by the vendees stating that that sum had been borrowed by the vendors from that company. The aggregate sum of Rs. 72 lakhs so retained was to be paid by the petitioner to that comAfter stating that a sum of Rs. 25 lakhs had been paid to the vendors, after the agreement, the sale deed records the payment of Rs. 48,43,000 to the vendors at the time of the execution of the sale deed. That sale deed, when presented for registration, was not registered in view of the letter by the Appropriate Authority issued on 17th Oct., 1989. The petitioners, thereafter, filed WP No. 14912 of 1991 challenging the order of the Appropriate Authority which had been made on 17th Oct., 1989. That writ petition was allowed by a learned single Judge of this Court on 7th Feb., 1992, with a direction to the Appropriate Authority to pass an order either granting a no- objection certificate or exercising the Governmentâs right to purchase the property under Chapter XX-C of the IT Act. The time fixed by the learned single Judge for the Appropriate Authority to pass the order was subsequently extended by a Division Bench of this Court in the writ appeal filed against the order of the single Judge. The Authority, thereafter within the time so extended, made an order on 2nd April, 1992, under s. 269UD(1) of the Act.
That order of the Authority, being the second in the series, was challenged in WP Nos. 5448 and 8108 of 1992. Those writ petitions were allowed on 21st Dec., 1992, on the ground that the petitioners had not been given a hearing before the order dt. 2nd April, 1992, was made. After the disposal of that petition, the Authority gave notice to the petitioners and after hearing them and receiving the reply, the Authority made the impugned order on 22nd Feb., 1993, directing the compulsory purchase of the property under s. 269UD(1) of the Act. Mr. Ramachandran, learned senior counsel for the petitioners, submitted that the impugned order is unsustainable, as it has failed to address itself to the basic question as to what the value of fourteen and half grounds is, as the method adopted by it for determining the market value of the property is not a method which can be countenanced in law, inasmuch as all that the Authority has done is to take two instances of sales which had taken place some eight months earlier, i.e., in January, 1989, in relation to two plots of two grounds each and relying solely on those transactions, applied the rate per ground ascertained from those transactions for this property and enhanced it further by assuming inflation in the subsequent months. Counsel submitted that the value paid by the petitioners was, in fact, the market value, as the property being a large one the extent being fourteen and half grounds with a large bungalow of about 6,000 sq. ft. thereon together with garages and other outlying buildings attached thereto, and that what a willing buyer for a property of that size would pay cannot be calculated on the basis of what a willing buyer would pay for a vacant plot of two grounds which would be less than 1/7th of the area of the property. Counsel also submitted that considering the large area and the high value, the number of willing buyers for such properties would only be a handful and the value of the property cannot be determined merely by taking instances of sale of much smaller areas and adopting that as the value for each and every part of this much larger area which was being sold not in parts, but as a whole.
Counsel further submitted that the Authority itself had declined to exercise the option of purchase when the matter was first considered by it by pointing out that there were disputes regarding title, and that the title of the vendors was not clear. Counsel submitted that a property for which there is some element of doubt regarding the vendorsâ title naturally would have to be valued at a lesser figure than the value for a property for which the title is perfect. This submission was made without prejudice to his submission that what had been paid was, in fact, the market value and nothing less. On this aspect, counsel submitted that the vendors had entered into a partnership agreement dt. 15th July, 1981, with three persons, viz., Iqbal, Udu-man and Katheeja Nachiar, for the development of this property as also two other adjoining properties which were also owned by the same vendors and in terms of that agreement had brought this property as part of their contribution to capital thereby making it an asset of the partnership in which the value of this extent of 14 grounds 1,620 sq. ft. was taken as Rs. 36 lakhs. Counsel submitted that those three persons, viz., Iqbal, Uduman and Katheeja Nachiar, were not parties to the agreement to sell that was entered into on 9th Aug., 1989, and that is the reason why the Appropriate Authority did not exercise the right of pre-emptive purchase. Counsel submitted that if in the view of the Authority a cloud on the title of the petitionersâ vendors existed and the vendors to that agreement were not in a position to transfer the title of other three persons, viz., Iqbal and two others, that cloud cannot be regarded as having become non- existent merely because of subsequent developments, viz., the suit filed by the petitioners, the agreement between the petitioners and Iqbal and others by which those persons agreed to receive money from the petitioners and give up their rights in the property. It was submitted that the Authority is required to ascertain the market value as on the date of the agreement with all the advantages and disadvantages existing as on that date, as the amount agreed to be paid is an amount which a willing purchaser was ready to offer being fully conscious of all the risks and problems that were in existence in relation to the property as on the date of the agreement.
10. Counsel further submitted that had the Government taken over the property on the date of the agreement, it would not have been able to secure the interest of the other three partners, as they were not parties to the agreement, and the fact that the petitioners subsequently filed a suit and also settled the claim of the other three partners who had earlier informed the petitioners and the vendors that they would be willing to settle, provided the property is sold to the petitioners, would have no bearing on the determination of the market value as on the date of the agreement.
11. Though the impugned order is a lengthy one, it rests entirely on the value stated in two sale deeds executed in January, 1989, in respect of two plots of two grounds each which plots are situated a little distance away from this property. The rate per ground under those sale deeds works out to Rs. 14 lakhs per ground. The Authority has merely multiplied that figure for the larger extent and has added thereto its estimate of the inflation from January to August, 1989. The Authority has made no attempt whatsoever to arrive at an independent valuation of this property by taking note of all the factors which go to affect its value and marketability.
12. It is well-known that a very large plot may not always fetch a value per sq. ft., that a much smaller plot will fetch. The value also would depend upon a large number of factors which go beyond the mere size. The number of potential buyers for a smaller plot is very large, as there would be a large number of persons looking for a convenient sized plot of relatively smaller dimension for the purpose of constructing houses thereon for dwelling purposes. However, when it comes to a large area which is to be sold as one compact unit with a large building thereon, the number of potential buyers for such a property would only be a fraction of the numbers who would be willing to buy a smaller plot of one-fifth or one-sixth the size of the larger plot. The plot of two grounds which was considered by the Authority is roughly less than one-seventh of the extent of this plot. The plots of two grounds each which had been sold in January were vacant and ready for development and had, in fact, been bought by a developer for the purpose of putting up construction and realising the value of the construction and the building.
13. The valuation of this property would be affected, by all these factors, i.e., its size, the size of the structure thereon, its location, the purpose for which it is purchased by the purchasers, the resources of the purchasers and their ability to pay the sum over Rs. 1.5 crores for one single property which has only a large residential building and which was currently fit for use only as a residence.
14. The Authority, in its impugned order, has sought to justify its action in not having made any attempt to have an independent valuation done by other experts, or by their own members having expertise, by merely stating that one of them is a former chief engineer. However, the order does not indicate anywhere that specialised knowledge was utilised in a demonstrable way for the purpose of determining the value of this plot after taking relevant factors into account. No exercise done by that former chief engineer in that regard, if he, in fact, had done one is available in the record.
15. The valuation has to be made as on the date of the agreement and after taking into account all the advantages and disadvantages then existing. The Authority itself was of the view that as on the date of the agreement, there was a cloud on the vendorâs title. The other partners in the firm to which the vendors had brought this, and their other properties as their capital contribution, were not parties to the agreement and could not have been compelled to divest themselves of their or their firmâs rights in the property. The costs and risk of litigation that would follow from a transfer which would not bind them would have a material bearing on the value of what the petitioners could acquire in terms of that agreement.
16. The power vested in the Authority under Chapter XX-C of the Act is a special power and a special jurisdiction which is required to be exercised with great care and with utmost fairness. It is not an arbitrary power merely meant to enable the Government to take over any property which it considers to be a profitable investment with a view to realise a larger sum by the sale thereof at a subsequent point of time. The object for which the provision was introduced must never be lost sight of. It is meant to prevent the evasion of tax by parties to real estate transactions by failing to disclose the true price for which the property is bought or sold. As it is not always possible to find proof of the extent of the unaccounted black money that passes hands, a special provision has been incorporated to hold out a real threat to parties to such transactions by enabling the Government to acquire the property at the stated price, and this is meant to induce the parties to state the real transaction value and not to set out a figure which is less than the real value.
17. The measure with reference to which the value is to be tested is the marketvalue. However, the Act does not define “market value”. It does not lay down the guidelines as to how to arrive at the market value. This situation cannot result in the Authority arbitrarily deciding any figure of its choice as the market value. Any such determination must be by adopting fair and objective standard, and that fairness and objectivity should be evident from the order that the Authority makes. Mere convenience cannot be a justification for claiming a particular value as the market value. It is no doubt convenient for the Authority to take one instance which had occurred within a reasonable time from the date of the agreement and extrapolate and assert that the amount so arrived at is the market value. The exercise has to go much deeper and has to cover a wider area.
18. As in this case we find that the method adopted by the Authority for ascertaining the market value is far from being satisfactory and not one which can be regarded as fair and just in the circumstances, we have no alternative but to set aside the order made by the Authority and send the matter back to it for carrying out the exercise and valuation of this property on objective criteria taking into account relevant circumstances which existed as on the date of the agreement. The impugned order is, therefore, set aside and the matter is remitted to the Authority to redetermine the market value of the property as on the date of the agreement to sell on acceptable and relevant criteria and after taking note of all relevant circumstances.
19. Counsel for the petitioners points out that Chapter XX-C of the Act itself has been deleted from the statute book w.e.f. 1st July, 2002 and, therefore, the Authority is likely to have a fair amount of free time. He submits that the Authority should be able to complete this task within a period of two months. Counsel for the Revenue, however, pleads that a larger period of time be given to the Authority.
20. Considering all the circumstances of the case, we consider a period of three months from the date of communication of the order to be more than adequate for the Authority to complete this task. The writ petitions are, therefore, disposed of as above. Consequently, WMP Nos. 7192, 8204 to 8211 of 1993 are dismissed.
[Citation : 269 ITR 501]