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2. The relevant facts lie within a narrow compass. The petitioner is the intending purchaser of a plot of land bearing No. B-7/108A, situated at Safdarjung Enclave, New Delhi, admeasuring 253 sq. mtrs. The owner of the property is one Jai Lal s/o Ghazi Ram. The said owner held the said plot under a lease executed by the Delhi Development Authority on 25.2.81. On 4.2.85 the owner entered into an agreement to transfer the leasehold rights in the said property to the petitioner and a sum of Rs. 4.5 lakhs was paid as the advance price. On the same day an agreement for the construction of a structure on the plot was entered between the said parties. On 9.7.86 a fresh agreement to sell the residential house put up on the aforesaid plot of land along with the leasehold rights in the said land was executed between the parties wherein the owner agreed to transfer to the petitioner his leasehold rights in the said land along with the ownership of the construction, namely, the building put up thereon, for Rs. 16 lakhs. In addition, the petitioner was liable under the agreement to pay Rs. 3.4 lakhs to the Delhi Development Authority on account of the unearned increase. On the coming into force of Chapter XX-C of the Income Tax Act, which was brought into effect from 1st October, 1986 by a Notification dated 7.8.86 in the area with which we are concerned, the said agreement to sell the said property along with Form No. 37-I in duplicate were furnished to the appropriate authority as per the requirements of Section 269UC of the Income Tax Act. After getting the report of the registered valuer, the appropriate authority passed an order for the purchase by the Central Government of the said property, namely, the lease hold rights in the land and the ownership of the said building under Section 269UD(1) of the Income Tax Act and served the same on the petitioner in the night of December 15, 1986. No specific reason was given in the said order for the compulsory purchase of the said property. All that was stated was "...considering all the relevant facts and for the reasons recorded as required. It is decided that the said property is fit for purchase by the Central Government at an equal amount of the apparent consideration...." The said order has been challenged in this petition on various grounds.

5. It was further urged by Mr. Salve that the provisions of the said Chapter were bad in law as' there was no appeal or revision provided against orders made by appropriate authorities for compulsory purchase of immovable properties which orders had serious civil consequences and cast an aspersion on the parties of attempted tax evasion. It was submitted that this was all the more so in view of the other factors pointed by him, namely, that the appropriate authorities are not required to give any show cause notice to the parties concerned before an order for compulsory purchase is made, and are not required to supply any reasons to the parties concerned which led the appropriate authorities to the conclusion that there was an intended tax evasion in the agreement to sell the immovable property concerned. It was submitted by him that the provisions of the said Chapter are clearly arbitrary, excessive and they infringe the provisions of Article 14 of the Constitution in so far as under the provisions when an order for compulsory purchase the rights of leaseholders, monthly tenants and mortgagees and other encumbrance holders are destroyed without any adequate provision for compensation to them. The mere provision that such encumbrance holders and the holders of the leasehold rights on the premises could claim a share in the compensation awarded to the owner is no substitute for their secured rights in the immovable property concerned.

34. 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 Rights 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 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. Under the provisions of Sub-section (1) of Section 269UD on an order for purchase by the Central Government of a immovable property, the government would be liable to pay as compensation 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 compulsory purchase is made under Sub-section (1) of Section 269UD, the property 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 is 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 purchase result in the rights 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 encumbrances. 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 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 encumbrances. It is equally well known that a property in respect of which term is a subsisting lease for a substantial period of time would fetch a comparatively low-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 consideration could be even less than the value of the encumbrances or the leasehold interests. An order for compulsory purchase in such cases would necessarily 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 part of Sub-section (1) of Section 269UE insofar as it provides that the property in respect of which an order under Sub-section (1) of Section 269UD in made shall vest in the Central Government free of all encumbrances. In our opinion the expression "free of all encumbrances" is liable to be struck down as arbitrary, without any rational nexus 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 set out by us earlier must be read down so as to make them inapplicable to bona fide lessees in possession or bond fide encumbrance holders in possession.

36. 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(1) 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 amount awarded as the purchase price to the owner of the property. This appears to be a fair construction 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 encumbrances 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 property 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 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 Government under Section 269UD.