Karnataka High Court
Chandrika Apartments Pvt. Ltd. vs Union Of India & Ors. on 1 September, 1993
Equivalent citations: (1996)130CTR(KAR)414
Author: R. V. Raveendran
Bench: R. V. Raveendran
JUDGMENT
R. V. RAVEENDRAN, J. :
The third respondent is the owner of property bearing No. S-7, 5th Main Road, 4th Block, Jayanagar, Bangalore (hereinafter referred to as "the said property"). She entered into an agreement of sale on 19th Feb., 1988, with the petitioner agreeing to sell the said property for a consideration of Rs. 33 lakhs and received an advance of Rs. 2 lakhs. The balance of sale consideration was to be paid within six months. The petitioner as the intending transferee and the third respondent as intending transferor filed a statement under s. 269UC of the IT Act, 1961 (for short, "the Act"), in Form No. 37-I in regard to the intended transfer. The Appropriate Authority, IT Department, passed an order on 30th May, 1988 (hereinafter referred to as "the impugned order"), under s. 269UD(1) of the Act ordering pre-emptive purchase of the said property.
2. The petitioner challenged the impugned order and the constitutional validity of Chapter XX-C of the Act by filing this petition on 15th June, 1988. This Court on 20th June, 1988, issued rule nisi and an interim order staying the delivery of possession of the said property in pursuance of the impugned order and further proceedings pursuant to the said order. This Court also restrained the petitioner and respondent No. 3 from effecting any change in the nature of the said property or alienating the same during the pendency of the petition.
Thereafter, the third respondent sought modification of the said interim order, for a direction either to the petitioner or to respondents Nos. 1 and 2 to pay her the balance consideration of Rs. 31 lakhs. In the application for such modification she stated that she had entered into an agreement for sale of the said property as she was in dire need of funds and as she desired to acquire suitable alternative property ; that she expected to obtain the entire sale price within the time specified in the agreement; that in view to the stay granted by this Court, neither the petitioner nor the first and second respondents were paying the balance of sale consideration; that consequently she was prevented from performing her part of the contract in regard to an agreement entered into by her for purchase of another property and she was being put to great hardship. The said application for modification was rejected by order dt. 14th Sept., 1988. The appeal (W. A. No. 1667 of 1988) filed by the third respondent against the rejection of her application was also rejected by order dt. 24th Nov., 1988. The third respondent sought review of the appellate order by filing C. P. No. 42 of 1989 which also came to be dismissed on 15th March, 1989. Thereafter she took up the matter before the Supreme Court in S. L. P. No. 12951 of 1989. By order dt. 14th Aug., 1991, special leave was granted and the appeal was numbered as Civil Appeal No. 3305 of 1992 and the same was disposed of on 14th Aug., 1992, by the following order :
"In view of our direction in civil appeal arising out of S. L. P. (C.) No. 15036 of 1988, the impugned order is set aside and the application for interim relief is remanded to the High Court for disposal according to law in the light of our decision. The appeals are accordingly disposed of. No order as to costs."
[Note : S. L. P. (C.) No. 15036 of 1988 referred to in the said order is the case of Rajalakshmi Narayanan vs. Margaret Kathleen Gandhi, subsequently reported in (1993) 201 ITR 681 (SC) 141].
The third respondent thereafter challenged the impugned order by filing a separate writ petition in the Madras High Court on 22nd April, 1990 (W. P. No. 5093 of 1990). An interim order of stay of further proceedings in pursuance of the impugned order was granted on 24th Jan., 1992. However, on 12th Jan., 1993, the said writ petition was dismissed as withdrawn.
Subsequently the constitutional validity of Chapter XX-C of the Act was considered by the Supreme Court in C. B. Gautam vs. Union of India (1993) 199 ITR 530 (SC) 87. That case was treated as a test case is regard to the several petitions wherein the constitutional validity of the said Chapter was challenged. The Supreme Court upheld the constitutional validity of the said Chapter but read down certain provisions and clarified certain other provisions of the said Chapter. The Supreme Court held that the requirement relating to grant of an opportunity to the affected parties, to show cause against the purchase, before making an order for purchase under the said s. 269UD of the Act, must be read into the provisions of Chapter XX-C. It was held that where an order under s. 269UD(1) was passed without giving an opportunity to the affected parties and without recording the reasons in the order that was communicated to the affected parties, the order was bad in law and was liable to be set aside.
3. In the instant case, it is not in dispute that the impugned order was passed by the Appropriate Authority without giving an opportunity to the affected parties to show cause against the proposed purchase. The impugned order does not also contain any reason as to why the Appropriate Authority decided to purchase the property. Hence, following Gautams case (supra), the impugned order dt. 30th May, 1988, has to be held as bad in law. Consequently the impugned order is hereby quashed.
4. The third respondent (owner) filed an application on 7th Jan., 1993 (I. A. II) seeking a direction to either the petitioner or the second respondent to pay interest to the third respondent on the balance amount of consideration at the rate of 24 per cent. per annum from the date of interim order (20th June, 1988) to the date of payment, having regard to the directions given by the Supreme Court in her Civil Appeal No. 3303 of 1992 [see (1993) 201 ITR 681 (SC)]. Shri K. R. D. Karanth, learned counsel for the respondent contended, that interest charged by the financial institutions varied between 22 per cent. and 24 per cent. per annum, that the Supreme Court in Rajalakshmis case (supra) awarded interest at the rate of 15 per cent. per annum and that the petitioner who is made to suffer for no fault of hers, should get interest on the balance amount, at least at the rate of 24 per cent. per annum. The question is whether any direction should be given in regard to interest.
In Rajalakshmis case (supra), the reasons for holding that the owner is entitled to interest is stated in the following terms :
"In our opinion, in this case, some relief should be granted to the appellant because she has neither attempted to delay or defeat the compulsory purchase of the property by the Government nor has she any objection to the completion of the agreement for sale of the property to respondent No. 1 (intending purchaser). However, we are not in a position to direct any amount to be paid to the appellant at this stage because it is not possible to predict whether the order for purchase of the said property made by the Appropriate Authority will be upheld or it will be set aside and the sale of the property in favour of the respondent No. 1 can be completed.
We can safely take judicial notice of the fact that the prices of immovable properties have shot up continuously for the last few years and today the said property, if sold in the open market, would fetch a much larger amount than that for which it was agreed to be sold to respondent No. 1.
Taking into account these circumstances we modify the impugned order and direct that in the event of the aforesaid order of the Appropriate Authority being upheld, the Government shall pay to the appellant, as the purchase price, the amount stated as the consideration for the sale of the said property in the agreement entered into between the appellant and respondent No. 1 with interest thereon at 15 per cent. per annum. In case the order of the Appropriate Authority is set aside and the transaction of sale in favour of respondent No. 1 is completed, respondent No. 1 shall pay to the appellant interest on the balance amount payable on account of the purchase price by respondent No. 1, interest at 20 per cent. per annum. The interest in either eventuality will be calculated right from the day the impugned interim order was made by the Delhi High Court.
We may clarify that whether interest should be paid to the owner of an immovable property who has entered into an agreement to sell the same which cannot be completed by reason of an order of purchase under s. 269UD of the IT Act, 1961, and at what rate, will have to be decided in the facts and circumstances of each case. All that can be observed by way of a general principle is that where such a seller has raised no objection or obstruction either to the purchase of his property by an order under s. 269UD or to the completion to the agreement of sale entered into by him but is unable to get the purchase price by reason of the said order and the stay order or orders passed by a Court, interest at an appropriate rate can, if equity so requires, be paid to him."
5. In Gautams case (supra) payment of interest to the owner is dealt with in the following manner :
"We realise that if an order for compulsory purchase of the property is made hereafter 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 possession of the property in question. Taking into account these factors and taking note of the fact that the immovable properties 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 nine per cent. per annum from the date the impugned order was made."
6. Sri K. R. Prasad, learned counsel for the petitioner, contending that interest cannot be awarded against the petitioner for the following reasons :
(a) that the principles laid down in Rajalakshmis case (supra) cannot be applied to this case as there was a basic difference between the two cases in so far as possession of a portion of the property had been delivered to the intending purchaser in Rajalakshmis case (supra), but possession was not delivered to the intending purchaser in the case and the third respondent continues to enjoy the property; (b) the principles in Rajalakshmis case (supra) were purely an interim measure intended to hold the field till the validity of Chapter XX-C was decided; that having regard to the final decision regarding the constitutional validity in Gautams case (supra), Gautams case (supra) prevailed over Rajalakshmis case (supra) and Gautams case (supra) contemplated payment of interest only by the Central Government in the event of pre-emptive purchase and did not contemplate or direct payment of interest by the intending transferee under the agreement of sale.
7. Sri H. L. Dattu, learned standing counsel for the Income-tax Department, on the other hand, contended that this Court should not make any order in regard to interest, in view of the following :
(a) that the question of payment of interest by the Central Government will arise for consideration only in the event of an order of purchase being passed by the Appropriate Authority and the impugned order is being set aside in pursuance of Gautams case (supra) and the matter is being remitted back, there need not be any direction in regard to payment of interest;
(b) the condition precedent for the applicability of Rajalakshmis case (supra) was that the owner should not have raised any objection or obstruction to the purchase of property; in the present case, the third respondent had challenged the order of pre-emptive purchase in the Madras High Court by filing a writ petition and, therefore, she was not entitled to any interest.
8. In view of these rival contentions, it becomes necessary to consider whether any directions regarding interest have to be issued. It may be true that in Rajalakshmis case (supra), possession of a portion of the property was given to the intending transferee. But, the reasons which prompted the Supreme Court to hold that the owner is entitled to interest on the balance sale price were : (a) that the owner had not delayed and defeated the compulsory purchase; (b) that the prices of immovable properties have shot up continuously in the last few years and if the property is now sold in the open market, it would fetch a much higher price than what was agreed as consideration, and (c) that the owner has been prevented from getting the sale price in terms of the agreement, in view of the stay order granted by the Court. All these conditions apply to the case on hand. The third respondent is prevented from obtaining Rs. 31 lakhs within 19th Aug., 1988, for the following reasons; (a) the petitioner filed this writ petition challenging the impugned order of purchase on 15th June, 1988, and obtained an order of stay; (b) the third respondent did not obstruct or delay the compulsory purchn that the methol notice can be taken of the fact that prices in Bangalore have gone up steeply in the last five years. Hence applying Rajalakshmis case (supra), a direction regarding interest should normally follow.
9. The second contention raised on behalf of the Appropriate Authority requires to be dealt with at this juncture. It was contended by the Appropriate Authority and also by the petitioner that the third respondent having filed a writ petition in the Madras High Court challenging the compulsory purchase, she should be deemed to have obstructed and delayed the compulsory purchase and therefore, one of the conditions laid down in Rajalakshmis case (supra) for grant of interest was not fulfilled by the third respondent. This is fallacious. When the order of compulsory purchase was made by the Department on 30th May, 1988, by the Appropriate Authority, the transferor did not challenge the said order. It was the petitioner (the intending purchaser) who filed this writ petition on 15th June, 1988, challenging the impugned order. In fact, immediately after service, the third respondent filed an application before this Court seeking modification of the interim order of stay making it clear that she was ready to perform her part of the contract in favour of the purchaser or deliver the property to the Appropriate Authority in pursuance of the impugned order and requested for payment of the balance of sale price. In spite of the hardship that was pleaded by her, no relief was granted to her, having regard to the legal position then prevailing. When the application was rejected, she filed an appeal against the order rejecting her application for payment and that was also rejected and the civil petition filed by her was also rejected. Not being able to get any relief in this Court which had consistently taken the view that stay could not be vacated at the instance of the owner, she filed a writ petition in the Madras High Court in April, 1990, having regard to the fact that the Madras High Court had taken a slightly different view in regard to the interim order of stay. Further proceeding in pursuance of the impugned order were stayed by the Madras High Court between 24th Jan., 1992, and 12th Jan., 1993, at the instance of the third respondent. The order of compulsory purchase was stayed in this proceedings at the instance of the intending purchaser on 20th June, 1988, and the said order continued to be in force till now. Merely because the third respondent out the desperation, filed a writ petition in the Madras High Court and obtained an order of stay for a limited period, it cannot be held against the third respondent particularly in view of the fact that the period of stay obtained by the third respondent merely overlaps the period of stay obtained by the petitioner, for a short duration. It would thus be seen that the writ petition filed by the petitioner was not with intent to obstruct or object to the order of purchase. Thus her readiness and willingness to deliver the property in response to the impugned order of compulsory purchase is evident. At the same time, her readiness to perform the contract in favour of the petitioner if there was no order of compulsory purchase is also evident. In these circumstances, the third respondent cannot be denied interest on the ground of her having filed a writ petition in the Madras High Court.
The next question that is required to be considered is whether the principles laid down in Rajalakshmis case (supra) in regard to interest, no longer hold good in view of Gautams case (supra). In Rajalakshmis case (supra), the Supreme Court held that an intending purchaser under the agreement of sale will be liable to pay interest on account of any delay occasioned by any stay order obtained by him and in addition to the agreed sale price when he ultimately purchased the property. In Gautams case (supra), the Supreme Court noticed the loss that will be caused to an owner, if there is a delay of several years in getting the sale price. Considering several factors, the Supreme Court held that interest at nine per cent. per annum will have to be paid by the Central Government in the event of an order of compulsory purchase being made. Gautams case (supra) neither dealt with nor prohibited award of interest against the intending purchaser, when they had delayed the transaction and the payment of balance price, by challenging the order of compulsory purchase. Hence Rajalakshmis case (supra) continues to be applicable in regard to payment of interest by the intending purchaser as Gautams case (supra) reiterates the principles underlying grant of interest in such cases. Gautams case (supra) holds that if the owner is forced to sell the property after considerable delay, and if the owner is not responsible for such delay, the owner should not be penalised by forcing him to receive only the price that prevailed at the time of the agreement of sale and the owner should also get some benefit by way of increase in the price over the years. This principle is equally applicable whether ultimately the purchaser is the Central Government or the intending purchaser under the agreement of sale. Having regard to the facts and circumstances of the case and the principles laid down by the Supreme Court, I feel that the rate of interest should be nine per cent. per annum. The interest rate should have been higher, but for the fact that the third respondent continues to hold possession of the property.
In this context, it is also useful to refer to the following observations made by K. Shivashankar Bhat J., in regard to interest, in a Division Bench judgment of this Court in Mangalore Chemicals and Fertilisers Ltd. vs. Dy. Commr. of Commercial Taxes (1993) 89 STC 265 (Kar) :
"There is no reason to understand that while enacting the Interest Act, 1978, Parliament intended to deprive the Court exercising an equitable jurisdiction, of the power to award interest, which it had earlier.
In CIT vs. Deepchand Kishanlal (1990) 183 ITR 299 (Kar), this Court while construing the provisions of the IT Act, 1961, held at page 309 that interest is compensatory in nature and a person deprived of the use of his money, is normally entitled to be compensated for it, by way of interest.
It cannot be denied that the writ jurisdiction is an equitable jurisdiction ; the width of this jurisdiction should not be limited so as to exclude a power to award interest in appropriate cases. To what extent and under which circumstances, interest should be awarded, depends upon the circumstances of each case, to be judicially considered. To deny the power to the writ Court to award interest to a person who is unjustly deprived of the money which he is legally entitled to enjoy as he deems fit, will be unduly restricting the extraordinary jurisdiction of the High Court under Art. 226 of the Constitution of India."
As the impugned order is being set aside and the matter is being remitted back to the Appropriate Authority for reconsideration, it is necessary that a clear direction should be given in regard to payment of interest also.
As a consequence of quashing of the impugned order of purchase, the following consequential directions are issued having regard to the directions of the Supreme Court in Gautams case (supra), Rajalakshmis case (supra), and the civil appeal filed by the third respondent :
(a) The statement in Form No. 37-I submitted before the Appropriate Authority in regard to the agreement of sale dt. 19th Feb., 1988, shall be treated as if it was submitted this day;
(b) If the Appropriate Authority intends to exercise the right to purchase the property it shall issue a show cause notice calling upon the intending transferor, transferee and the affected parties to show cause why the order of compulsory purchase should not be made and afford a reasonable opportunity to the affected parties to show cause ; and if deemed fit hold a summary enquiry and pass such order as it deems fit;
(c) In the event of the Appropriate Authority deciding to pass an order of compulsory purchase under s. 269UD(1) of the Act, interest at nine per cent. per annum shall also be paid on the balance amount of apparent consideration from the date of the impugned order to the date of payment (on account of escalation in value of the property, as part of price);
(d) In the event of the Appropriate Authority not exercising the option to purchase the said property and the third respondent conveying the property to the petitioner, the petitioner shall pay the balance sale consideration of Rs. 31 lakhs with interest at nine per cent. per annum from 19th Aug., 1988 (the due date for payment under the agreement), which shall also form part of the price.
With these observations, the petition and I. A. II are partly allowed and the matter is remitted to the Appropriate Authority, IT Department, for disposal in accordance with law and the above observations.