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Gurbux Gianchand Motwani v. S.C Prasad And Others
Structured Summary of the Opinion (M.B. Shah, C.J.)
Factual and Procedural Background
The petitioner purchased Flat No. 2 (first floor) in the building called "Garden Homes", Khar, Bombay, by an agreement dated 22nd June, 1992 for a disclosed consideration of Rs. 38,00,000. The Appropriate Authority passed an order dated 25th March, 1994 of compulsory purchase under Chapter XX-C of the Income-Tax Act, 1961, concluding that the fair market value on the date of the agreement was Rs. 46,00,000 (Rs. 3,415 per sq. ft.), i.e., the disclosed consideration differed by more than 15%.
Procedural history relevant to the challenge: - The petitioner had earlier initiated Writ Petition No. 2096 of 1992 challenging an earlier compulsory purchase order dated 27th August, 1992. A Division Bench granted interim relief on 29th September, 1992 restraining respondents from tendering amounts under section 269-UF(2), later modified to direct deposit with the Prothonotary & Senior Master. - Writ Petition No. 2096 of 1992 was admitted on 31st January, 1994 on terms requiring the petitioner to deposit Rs. 38 lacs less Rs. 3.80 lacs (earnest money). The Appropriate Authority then issued a show cause notice (28th February, 1994) and, after hearing, passed the impugned order of 25th March, 1994. The petitioner filed the present petition on 21st April, 1994. The earlier writ (2096 of 1992) was subsequently withdrawn on 27th July, 1994.
Legal Issues Presented
- Whether the Appropriate Authority's order of compulsory purchase dated 25th March, 1994 — which fixed fair market value at Rs. 46 lacs on the date of the agreement — was justified on the basis of the sale instances and valuation material before it.
- Whether the Appropriate Authority applied its mind properly (i.e., whether the determination of fair market value identified or relied on specific comparable sale instances or an articulated methodology).
- Whether, in consequence of the interim orders and delay, the petitioner should be directed to pay interest to the vendors (respondents Nos. 5 and 6) on the balance purchase price, and at what rate.
Arguments of the Parties
Petitioner's (Purchaser's) Arguments
- The impugned order is arbitrary and without application of mind.
- Sale instances relied upon by the Appropriate Authority (and/or Valuation Officer) show no under-valuation or, at most, an under-valuation within 15% of fair market value.
- The petitioner purchased the flat to comply with section 54 of the Income‑Tax Act (investment of sale proceeds from another flat sold at Worli), which explains the transaction and the timing.
- The Valuation Officer's report (Exhibit "D") discounted several items and allowed a 120‑day discount, arriving at a discounted consideration of Rs. 35,19,849 (rate Rs. 2,613 per sq. ft.), and endorsed that this declared rate "is not grossly understated." The petitioner relied on that valuation and on the comparable sale instances to show the disclosed consideration was not understated by more than 15%.
Appropriate Authority / Respondents' Arguments
- The Appropriate Authority concluded that fair market value was Rs. 46 lacs (Rs. 3,415 per sq. ft.) and initiated compulsory purchase proceedings under Chapter XX‑C.
- In response to the Court, the respondents' counsel contended that the Appropriate Authority relied upon the sale instances referred to in the show cause notice (eight sale instances), although the show cause notice did not specify which particular instance or methodology produced the Rs. 46 lacs valuation.
- The Appropriate Authority had earlier raised a query about terrace and balance FSI, prompting initial proceedings; subsequently it clarified that the terrace above was common (not exclusively attached to the subject flat) and that the terrace was not accounted for in built‑up area calculations.
Respondents Nos. 5 and 6 (Vendors) — Arguments on Interest
- Respondents Nos. 5 and 6 contended they were deprived of their money for 21 months because of the interim order of the Court and therefore the petitioner should pay interest on the balance purchase price at the rate of 20% per annum. They relied upon the Supreme Court decision (Rajalakshmi Narayanan v. U.K. Gandhi) for the proposition that interest may be payable to a seller in appropriate circumstances where the seller is unable to obtain the purchase price due to a purchase order and interim stay(s).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Rajalakshmi Narayanan v. U.K. Gandhi, (1993) Vol. 201 I.T.R. 681 (Supreme Court) | The general principle that whether interest should be paid to the owner/seller whose agreement to sell could not be completed due to an order of purchase under section 269‑UD, and at what rate, depends on the facts and circumstances; where the seller neither objected nor obstructed the purchase but was unable to get the purchase price because of the purchase order and stay(s), interest at an appropriate rate can, if equity so requires, be paid to him. | The Court considered this principle when addressing respondents Nos. 5 and 6's plea for interest. The Court directed the petitioner to pay interest at the rate of 20% per annum on the balance purchase price for 21 months (as part of its final directions), applying the general equitable principle cited in the precedent. |
Court's Reasoning and Analysis
The Court examined the valuation material, the Valuation Officer's report (Exhibit "D"), and the sale instances before the Appropriate Authority. Key points of the Court's analysis (as stated in the opinion) are:
- Terrace and built‑up area: The Appropriate Authority clarified that although there was a terrace above the subject flat, it was not exclusive to the property and therefore the terrace was not to be included in the built‑up area calculation. The Court regarded this clarification as significant because the initial query about terrace and balance FSI had been a basis for initiating proceedings.
- Valuation Officer's report: The Valuation Officer inspected the property on 23rd June, 1992 and deducted Rs. 65,151 as a 120‑day discount, Rs. 1.5 lacs as garage price, Rs. 60,000 as fixtures and Rs. 5,000 transfer fees — arriving at a discounted consideration of Rs. 35,19,849 (rate Rs. 2,613 per sq. ft.). The Valuation Officer endorsed that "the declared rate of Rs. 2613/- per sq. ft. of the subject bungalow is not grossly understated."
- Sale instances and lack of articulation by the Appropriate Authority: The Appropriate Authority, in its impugned order, stated the fair market value was Rs. 46 lacs but did not specify which sale instance(s) or which method produced that valuation. Although eight sale instances were referred to in the show cause notice, the show cause notice did not state that any particular sale instance was relied upon for fixing Rs. 46 lacs, nor did the Appropriate Authority indicate whether it averaged instances or otherwise derived the figure.
- Comparative assessment: Considering the eight sale instances and the discounted declared rate of Rs. 2,613 per sq. ft., the Court observed that on the material before it the petitioner’s discounted per sq. ft. rate could not be taken as showing under‑valuation in excess of 15%. The Court expressly said that, having regard to those instances and the Valuation Officer’s calculations, "it cannot be inferred that the petitioner has purchased the property by under‑valuing the consideration or that the apparent consideration is less than 15% of the fair market value."
- Distinctions as to property type: The first three sale instances (on which the first order had relied) related to bungalows, whereas the petitioner purchased a flat. The Court treated this as further relevant to the comparison and to the sufficiency of the Appropriate Authority's reasoning.
- Specific sale instance invoked by respondents: The respondents relied upon a sale instance dated 24th April, 1992 (Flat No. 51, Chitrakool, 1,380 sq. ft. at Rs. 4,218 per sq. ft.). The Court noted that the Appropriate Authority had not specifically relied on that instance as the basis for fixing fair market value at Rs. 46 lacs, and therefore that reliance did not justify the impugned finding.
- Conclusion on application of mind: For these reasons — lack of specification of which comparable(s) produced the Rs. 46 lacs value, the Valuation Officer's discounted rate and endorsement, property‑type differences, and the terrace clarification — the Court held the impugned order was rendered "without application of mind" and therefore arbitrary.
- Interest claim: The Court recorded that respondents Nos. 5 and 6 claimed they had been deprived of funds for 21 months and sought interest at 20% per annum. The Court referred to the Rajalakshmi Narayanan decision for the broad equitable principle relating to interest in such circumstances and addressed the claim by directing payment of interest at 20% per annum for 21 months on the balance purchase price.
Holding and Implications
Holding: The petition is allowed; the impugned order dated 25th March, 1994 is quashed and set aside.
Direct consequences and directives issued by the Court (as given in the opinion):
- The Appropriate Authority is directed to hand over possession of the flat in question to the petitioner within 15 days from the date of the judgment.
- The petitioner is directed to pay to respondents Nos. 5 and 6 interest at the rate of 20% per annum on the balance purchase price of Rs. 34,20,000 (i.e., Rs. 38,00,000 less Rs. 3,80,000 earnest money) for a period of 21 months; this payment is to be made within one month from the date of the judgment.
- It is clarified that the Appropriate Authority may withdraw the amount that it had deposited in Court, together with the interest accrued on that deposit.
- Respondents Nos. 5 and 6 stated they would execute the necessary sale documents in favour of the petitioner.
- Rule is made absolute with no order as to costs; issuance of a certified copy was expedited.
Implications beyond the parties:
The opinion does not articulate any new, general legal rule or precedent beyond applying established equitable principles concerning payment of interest in the factual circumstance of a purchase order and interim stays (as discussed with reference to Rajalakshmi Narayanan). The immediate effect is the relief and monetary directions between the parties; no broader precedent is stated to have been laid down by this judgment.
M.B Shah, C.J:— The petitioner who is the purchaser of Flat No. 2 situate on the first floor of the building called “Garden Homes”, Khar, Bombay, has challenged the order of compulsory purchase dated 25th March, 1994 passed by the Appropriate Authority, Bombay. By the impugned order, the Appropriate Authority arrived at the conclusion that the fair market value of the subject property is Rs. 46 lacs on the date of the agreement (22nd June, 1992) as against the disclosed consideration of Rs. 38 lacs and, therefore, the difference is much more than 15%.
2. The aforesaid order is passed with regard to a residential flat, being Flat No. 2, admeasuring 1347 square feet on the first floor of “Garden Homes”, Khar, Bombay. It is the contention of the petitioner that he was the owner of another flat situate at Worli and that in June 1992, he entered into an agreement for the sale of the said flat for a consideration of Rs. 45 lacs and in view of the provisions of section 54 of the Income-Tax Act, 1961, (hereinafter referred to as “the Act”) the petitioner was required to invest the sale proceeds in another residential flat to obtain tax benefits. Hence, on 22nd June, 1992, the petitioner entered into an agreement for the purchase of the flat in question from respondents Nos. 5 and 6 for a consideration of Rs. 38 lacs. The petitioner paid Rs. 3.80 lacs as earnest money. As per the agreement, the balance was required to be paid with a period of 15 days from the date of the receipt of NOC from the Income-Tax authorities under Chapter XX-C of the Act. On 23rd June, 1992, the petitioner and respondents Nos. 5 and 6 filled in Form 37-I. It is the contention of the petitioner that on 23rd June, 1992, the property was inspected by the Valuation Officer and in the Valuation Report he deducted an amount of Rs. 65,151.00 as discount for 120 days which would be the time to be taken by the Appropriate Authority for passing an order under Chapter XX-C and for paying the consideration. He also deducted Rs. 1.5 lacs as the price of the garage; Rs. 60,000.00 as the price of fixtures and Rs. 5,000.00 as transfer fees; thus according to the Valuation Officer the discounted amount of consideration was Rs. 35,19,849.00 for the flat admeasuring 1347 square feet which works out at the rate of Rs. 2,613.00 per square feet. The Valuation Report is produced on record at Exhibit “D” to the petition. The Valuation Officer has made the following endorsement on the Valuation Report:
“7.7 Having regard to sale instances given on page 6 and also considering some appreciation, I am of the opinion that the declared rate of Rs. 2613/- per sq. ft. of the subject bungalow is not grossly understated.”
3. The basis for initiation of the proceedings under Chapter XX-C was because of the following endorsement made on behalf of the Appropriate Authority below the aforesaid report:—
“What about terrace? It is not accounted for in B.U.A rate calculation. Any balance FSI?”
4. In view of the aforesaid endorsement, the Appropriate Authority passed an order dated 27th August, 1992 for compulsory purchase of the aforesaid flat under Chapter XX-C of the Act. The petitioner challenged the said order by filing Writ Petition No. 2096 of 1992. By an interim order dated 29th September, 1992, the Division Bench of this Court restrained respondents Nos. 1 and 2 from tendering the amount payable under section 269-UF(2) till the petition was heard for admission. Thereafter, on 30th September, 1992, the order was modified to the extent that the amount payable under section 269-UF(2) was directed to be deposited with the Prothonotary and Senior Master on or before 6th October, 1992 and the Prothonotary & Senior Master was directed to invest the said amount in a Nationalised Bank.
5. On 31st January, 1994, the aforesaid Writ Petition No. 2096 of 1992 was admitted. The Court directed the petitioner to deposit in Court Rs. 38 lacs, less Rs. 3.80 lacs which has been paid to the Vendor as earnest money. It was also directed that if the amount is deposited as aforesaid, respondents Nos. 1 and 2 shall give a hearing to the petitioner and pass a fresh order on or before 31st March, 1994 provided the petitioner co-operates.
6. In view of the aforesaid order passed by this Court, on 28th February, 1994, a show cause notice was issued by the Appropriate Authority which is produced on record and after hearing the petitioner and the Vendor, the impugned order dated 25th March, 1994 was passed. That order was challenged by filing the present petition on 21st April, 1994. Subsequently, on 27th July, 1994, the earlier Writ Petition No. 2096 of 1992, which had challenged the order of compulsory purchase dated 27th August, 1992 was withdrawn.
7. At the time of hearing of this petition, the learned Counsel for the petitioner vehemently submitted that the impugned order passed by the Appropriate Authority is arbitrary and that the sale instances relied upon by it clearly established that there is no under-valuation or, in any case, it is not more than 15% from the fair market value arrived at by the Appropriate Authority. In the present case, the Appropriate Authority has, while passing the first order, relied on the following three sale instances:—
“ANALYSIS OF THE COMPARABLE THREE INSTANCES RELIED UPON BY THE VALUATION OFFICER, APPROPRIATE AUTHORITY
Case No. & Date Details of property Value Rs. Built up Area Sq. Ft. Rate per Sq. Ft. Rate per Sq. Ft. Less 15% 7808 26-7-1991 Bungalow No. 8 Golden Acres Ruia Park Juhu 41,50,000.00 40,69,993.00 (discounted) 1519 2679.00 2277.00 7871 21-8-1991 Bungalow No. 4 Golden Beach Bungalow Society Ruia Park 58,50,000.00 57,45,244.00 (discounted) 2620 2183.00 1855.00 8145 10-9-1991 Bungalow No. 7 Silver Sand Juhu Tara Rd. 48,00,000.00 47,75,558.00 (discounted) 2136 2236.00 1900.00
8. Subsequently, the Appropriate Authority has not relied upon the aforesaid sale instances, but has relied upon the following five sale instances:—
Case No. & Date Chronological Serial Number Name of Building Built-up Area Sq. Ft. Market Rate Rs. Less 15% Net Rate Rs. 9118 30-3-1992 III Flat No. 501 5th Shangrilla Khar (Actually it is at Bandra) 1166 3109 2642 8482 16-2-1991 II 601 & 602 Mangal Mitra, 16th Road, Khar 6th Floor 504 3610 3068 8323 I Half flat, 7th FI. 702 Link-way, Khar 486 3039 2583 9436 26-5-1992 V Flat No. 10, 2nd Fl. Nugget, Khar 867 3353 2850 9244/95 24-4-1992 IV Flat No. 51 Chitrakool 14th Road, Khar. 1380 4218 3585
9. At this stage, we would further note that in the impugned order, in paragraph 7, the Competent Authority has clarified as under:—
“The second confusion is regarding the terrace. During the course of our inspection, we found that there was terrace above, but the same is not exclusive to the subject property. This is for common use. The reference to the two terraces which was subsequently rectified as one terrace in the order dated 24/25th September, 1992 is inadvertent which occurred in the order because of the description given in Column 7 of Form 37-I where the description of the property is given as bungalow No. 2 with terrace. While passing the first order, perhaps the number of the bungalow viz. 2 was wrongly attached with terrace, thus describing the property as bungalow with two terraces. Subsequently, this was rectified as one terrace. In fact, as stated earlier, though there is terrace above but this is not attached with the subject property exclusively. It seems that while inspecting the property at the time of passing the first order dated 27-8-1992, the portion of balcony was taken as terrace. Be that as it may, on our inspection, we found that the subject property consists of three bed rooms, one kitchen, one drawing-cum-dining room and one closed balcony, two toilets (one attached) and a servant toilet. The built-up area is the same as given in the report of the Valuation Officer. With this preliminary clarifications, we may now deal with the arguments of the learned Representatives.”
10. Further, it is also clarified that the terrace is not accounted for in the built-up area for calculation of the rate.
11. Once this aspect is admitted by the Appropriate Authority, in our view, it was apparent that the initiation of proceedings under Chapter XX-C was without any basis. In view of the aforesaid clarification, it is clear that the purchaser is not entitled to the exclusive use of the terrace. There is no question of any balance F.S.I because the petitioner has purchased only a flat and not a bungalow.
12. In the impugned order, the Appropriate Authority has straight-away stated that looking to all the aspects of the case, it was of the view that the fair market value of the subject property is Rs. 46 lacs on the date of the agreement, giving a market rate of Rs. 3,415.00 per square foot as against the disclosed consideration of Rs. 38,00,000.00. For arriving at this calculation, the Appropriate Authority has not stated upon which sale instance it had relied upon for holding that the value of the property on the date of the agreement to sell would be Rs. 46 lacs as against the disclosed consideration of Rs. 48 lacs. However, the learned Counsel for the respondents submitted that the Appropriate Authority has relied upon the sale instances which are referred to in the show cause notice. It is true that in the show cause notice, the Appropriate Authority has referred to all the aforesaid eight sale instances. But in the show cause notice, it is nowhere mentioned that the Appropriate Authority is relying upon a particular sale instance or arriving at a conclusion that the fair market value of the property under question would be Rs. 46 lacs. We do not know whether the Appropriate Authority has determined the fair market value of the property at Rs. 46 lacs by averaging the rate of all the eight sale instances or by referring to any one particular sale instance.
13. In any set of circumstances, considering the aforesaid eight sale instances and the fact that the discounted rate per square feet of the property under purchase comes to Rs. 2,613.00 and that out of eight sale instances, price is more than that of five sale instances referred to and relied upon by the Appropriate Authority, it cannot be inferred that the petitioner has purchased the properly by under-valuing the consideration or that the apparent consideration is less than 15% of the fair market value of the property under purchase.
14. We further note that with regard to the first three sale instances on the basis of which the first order was passed, they clearly indicate that the apparent consideration paid by the petitioner was the fair market rate per square foot. We would also note that the sale instances were with regard to bungalows while the petitioner has purchased a flat.
15. As against this, the learned Counsel for the respondents referred to and relied upon the sale instance dated 24th April, 1992, which indicates that Flat No. 51 in Chitrakool, Khar, Bombay, admeasuring 1380 square feet, was sold at the rate of Rs. 4,218.00 per square foot. However, we fail to appreciate this contention because the Appropriate Authority has not specifically relied upon the said sale instance for arriving at the conclusion that the fair market value of the subject property would be Rs. 46 lacs on the basis of the said sale instance.
16. In this view of the matter, the impugned order is without application of mind and, therefore, arbitrary and hence is required to be set aside.
17. However, at this stage, the learned Counsel for respondents Nos. 5 and 6 raised a contention that because of the interim order passed by this Court, respondents Nos. 5 and 6 were deprived of their money for a period of 21 months. With regard to calculation of 21 months, there is no dispute between the parties. It is also an admitted fact that respondents Nos. 5 and 6 withdrew the amount deposited by the petitioner on the basis of the order passed by this Court on 31st January, 1994. The learned Counsel for respondents Nos. 5 and 6, therefore, submitted that the petitioner should be directed to pay interest on the balance purchase price with interest at the rate of 20% per annum and for this purpose he relied upon the following paragraph from the decision rendered by the Supreme Court in the case of (Rajalakshmi Narayanan v. U.K Gandhi)1, 1993 Vol. 201, I.T.R 681:—
“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 section 269-UD of the Income-tax Act and at what rate, wilt 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 section 269-UD 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.”
18. Considering the aforesaid decision, the learned Counsel for the petitioner states that the petitioner should pay interest to the vendor at the rate which may be determined by this Court.
19. In the result, the petition is allowed. The impugned order dated 25th March, 1994 (Exhibit “H” to the petition) is quashed and set aside. The Appropriate Authority is directed to hand over possession of the flat in question to the petitioner within a period of 15 days from today. The petitioner is directed to pay to respondents Nos. 5 and 6 interest at the rate of 20% per annum on the balance purchase price of Rs. 34,20,000.00 for a period of 21 months within a period of one month from today. It is clarified that it would be open to the Appropriate Authority to withdraw the amount deposited by them in this Court with interest accrued thereon.
20. The learned Counsel for respondent Nos. 5 and 6 states that respondents Nos. 5 and 6 would execute necessary documents for the sale of the said flat in favour of the petitioner. Rule is made absolute with no order as to costs.
21. Issuance of certified copy of this judgment is expedited.
22. Petition allowed.
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