TMI Blog1993 (10) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 as advance. The agreement provided that the owner shall sell the property free from all encumbrances, liens, attachments, charges or claims and shall deliver vacant possession of the entire property to the purchaser, at the time of registration of the sale deed, against payment of the balance sale price. The owner and the intending purchaser filed a statement under section 269UC of the Income-tax Act, 1961 (hereinafter referred to as "the Act") in Form No. 37-I on January 28, 1993, in regard to the proposed transfer with the appropriate authority (second respondent). In column 3 of the annexure to the said statement, the transferor is required to mention the details of the persons in occupation of the property sought to be transferred. In the said column, the owner showed that only he was in occupation of the property. The fact that the tenant was in occupation of the first floor portion was not disclosed, However, in the statement of additional information furnished on February 12, 1993, the owner disclosed that the first floor was leased to the tenant, but reiterated that he will give vacant possession of the entire property at the time of registration of the sale deed. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. This court issued rule nisi and an interim stay of dispossession on April 15, 1993. Another interim order was made on April 29, 1993, staying all further proceedings pursuant to the impugned order of purchase, until further orders. By interim order dated June 28, 1993, the Central Government was directed to deposit the sale price with the appropriate authority who in turn was directed to deposit the same on or before June 30, 1993, with the State Bank of India, St. Mark's Road, Bangalore, under the Capital Gains Account Scheme, 1988, to the account of the owner, without prejudice to the rights and contentions of the Central Government and subject to the final decision in the writ petition. Sri K. G. Raghavan, learned counsel for the tenant, contended that the tenant was in lawful possession of the first floor portion of the property; that the tenant had a valid lease up to May 10, 1994, as per mutual agreement between the tenant and the owner and that was disclosed to the appropriate authority by the owner in the statement of additional information ; that even if it was to be held that there was no term lease in favour of the tenant, having regard to the fact that there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession from the tenant cannot be a ground for delaying payment of the sale price due to the owner ; and therefore, the interim order of stay should be vacated so that the owner can receive payment ; and if the payment was not made there could be revesting in the owner, as contemplated under section 269UH. On the aforesaid facts and contentions, the following points arise for consideration : (a) Whether the appropriate authority can require a tenant in lawful possession of the property in regard to which an order of purchase is made under section 269UD(1), to vacate the property, where the tenant has not agreed to vacate it and when he is not a party to the statement filed under section 269UC of the Act in Form No. 37-I ? (b) Whether such a tenant is liable to surrender possession of the tenanted premises under section 269UE(2) of the Act and on his failure to do so, whether the appropriate authority can forcibly evict the tenant from the premises under section 269UE(3) of the Act ? (c) Whether payment of the price to the owner of the property can be withheld, till vacant possession of the entire property is obtained by the Central Government, when delivery of vacant pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) and (4) shall not apply where the person in possession of the immovable property, in respect of which an order under sub-section (1) of section 269UD is made, is a bona fide holder of any encumbrance on such property or a bona fide lessee of such property, if the said encumbrance or lease has not been declared void under the proviso to sub-section (1) and such person is eligible to continue in possession of such property even after the transfer in terms of the aforesaid agreement for transfer. (3) If any person refuses or fails to comply with the provisions of sub-section (2), the appropriate authority or other person duly authorised by it under that sub-section may take possession of the immovable property and may, for that purpose, use such force as may be necessary." Section 269UE(1) as originally enacted provided that on an order of purchase being made under section 269UD(1), such property will vest in the Central Government free from all encumbrances. There were also no provisos to sub-sections (1) and (2) of section 269UE. The words "in terms of the agreement for transfer referred to in sub-section (1) of section 269UC" were substituted for the words "free from all encumbr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 hand over 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 lose his valuable right to remain in possession and enjoy the usufruct. This clearly shows that an order for compulsory purchase results in the rights of holders of encumbrances and leasehold rights being destroyed or significantly diminished. In a given case, it might happen that property is intended to be sold under an agreement to sell subject to encumbrances and leasehold rights, and very often agreements to sell 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchased under an order made under section 269UD(1) would vest in the Central Government subject to bona fide encumbrances or leasehold interests subsisting thereon other than monthly tenancies. It was urged by him that, in a pre-emptive purchase, normally, what would be purchased is only that which was put up for sale or sold, and if the same principle was applied to the compulsory purchase by the Central Government under section 269UD, the rights of the encumbrance holders or the holders of leasehold interests subject to which the property was agreed to be sold could be protected. We agree that in order to save a statute or a part thereof from being struck down it can be suitably read down. But such reading down is not permissible where it is negatived by the express language of the statute. Reading down is not permissible in such a manner as would fly in the face of the express terms of the statutory provisions. In view of the express provision in section 269UE that the property purchased would vest in the Central Government 'free from all encumbrances', it is not possible to read down the section as submitted by the learned Attorney-General. In the result, the expression 'free f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arify that if any lease or encumbrance is created with a view to defeat the provisions of Chapter XX-C, such lease or encumbrance will be regarded as void or ignored for the purposes of the said Chapter. That, however, is for Parliament to consider." Dealing with the position of monthly tenants who did not hold term leases, the Supreme Court held (at page 559) : "The next controversy posed was regarding the monthly tenancies. As far as monthly tenancies are concerned, they do not pose any difficulty because monthly tenants are also lessees in law although their right is a very limited one. If the agreement to sell does not provide for vacant possession or the determination of monthly tenancies, such tenancies would continue even on an order for purchase by the Central Government being made by the appropriate authority concerned under section 269UD(1) ; but such tenants would lose the protection given to tenants under the rent protection laws because such laws are not made applicable to properties owned by the Central Government with the result that their tenancies could be terminated by the Central Government. The loss of the protection of the Rent Control Acts cannot be regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e premises before the sale. However, the owner did not obtain vacant possession from the said tenant. There was no material to show that the tenant in possession is not a bona fide tenant, and that he had been inducted to defeat the provisions of Chapter XX-C. Though the appropriate authority was aware of the lease(monthly tenancy) in favour of the tenant regarding the first floor portion, no order was made under the proviso to section 269UE(1) declaring that the leasehold interest held by the tenant was void. It is also seen that the appropriate authority did not call upon the owner nor make any effort to find out how he proposed to deliver vacant possession by April 30,1993, when the first floor portion of the premises was in the occupation of the tenant and the tenant had not agreed to vacate the said portion of the premises. In fact, being aware of the fact that the tenant was in possession, the appropriate authority sent a show-cause notice dated March 8, 1993, to the tenant. Thus, the appropriate authority was aware that they will not get vacant possession of the first floor at the time of sale, as stated in the agreement of sale. Consequently, on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position regarding delivery of vacant possession. In fact before making an order of purchase under section 269UD(1), the appropriate authority is required by section 269UD(1A) to give a hearing to the transferor and the persons in occupation of the property. Nothing prevents the appropriate authority from making such enquiry or investigation as is necessary to satisfy itself whether it will be able to get vacant possession or not. If there is a tenant and such tenant has not agreed to vacate and the agreement of sale provides for vacant possession, the appropriate authority should, before passing an order of purchase specifically call upon the owner to refer to the existence of the tenancy, in a supplement to the agreement and Form No. 37-I statement and to explain how he proposes to deliver vacant possession of the tenanted premises and confirm whether Form No. 37-I statement should be treated as one relating to sale of a property with vacant possession or not. The owner cannot take exception to such a demand and will be bound to give the required clarifications. The decision in Tanvi Trading's case does not come in the way of the appropriate authority from seeking and obtaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pre-emptive right of purchase should be exercised or not." If the appropriate authority however does not choose to get the required clarification from the owner in regard to vacant possession, being aware of the tenancy, it has to be inferred, so far as the tenant is concerned, that the appropriate authority is proceeding on the basis that the premises are subject to the tenancy and it will not get vacant possession of the portion subject to the tenancy, or passing of an order of purchase. As far as the transferor/owner is concerned, the appropriate authority has the choice of issuing a "No objection certificate" or passing an order of purchase and requiring performance, namely, delivery of possession and withholding the price till such performance. Having regard to the scheme of Chapter XX-C, the provisions of section 269 UE(2) land (3) will operate only where the agreement provides that vacant possession of the premises will be delivered at the time of sale and where in spite of such a term, the transferee or any other person who has been put in possession by the transferor (other than a lawful tenant or encumbrance holder or person in possession in his own right) fails to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a tenant is in possession of a property, his right to continue in possession is governed by the terms of the lease or the provisions of the statute which extends the protection against eviction of such tenants.The tenant's right to continue in possession, subject to eviction in accordance with law, does not depend upon the whims of his landlord (owner)or the terms of any agreement which the landlord-owner may enter into with third parties for sale or transfer of the property. Where the appropriate authority is aware that a bona fide tenant is in occupation (either on account of a statement to that effect being incorporated in the agreement or in the statement in Form No. 37-I or in the additional information furnished or on account of spot inspection), unless the tenant had also agreed to deliver up vacant possession, it should be deemed, so far as the tenant is concerned, that the agreement of sale contains a term that the tenant is entitled to continue in possession, even after the transfer in terms of the agreement of sale. It is a fundamental rule of contract that no person can be bound by the terms of a contract, to which he is not a party. An absolute term in a contract by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 and by evicting the tenant under section 269UE, can immediately increase the value of the property to Rs. 201 lakhs. In the bargain, the innocent and bona fide tenant will lose the tenancy and protection against eviction. This is not to say that the owner in the case on hand is guilty of any such unscrupulous act. The illustration is merely to indicate the consequences of accepting the interpretation placed by the respondents on section 269UE(2) and (3). Let us look at the matter from another angle. Each transfer or is bound to disclose the true facts in the statement to be filed in Form No. 37-I. In this case, the transferor has admittedly not mentioned the true position regarding tenancy and vacant possession, either In the agreement of sale or in Form No. 37-I statement. It has been noticed earlier that the owner has made a wrong statement, in Form No. 37-I statement, that he is in possession of the entire property. It is no doubt true that in the statement of additional information, he refers to the tenancy. But there also, he reiterated that he will deliver vacant possession on the date of sale. There by the owner represented and held out to the appropriate authority t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the appropriate authority will be well within its right to release only Rs. 6,50,000 now and pay the balance of Rs. 20 lakhs at the time of getting vacant possession. Sri K. S. Ramabhadran vehemently contended that the owner will be put to irreparable loss and hardship if the amount is withheld, He pointed out that on the date of the order of compulsory purchase (March 29, 1993), the property vested in the Central Government and if the payment of the price is delayed, the owner would have lost the property without getting the price. He also pointed out that there was no deliberate false statement by the owner ; that failure to refer to the tenant in the agreement and Form No. 37-1 statement was due to oversight and the owner has disclosed the existence of the tenant in the statement of additional information ; and that the owner bona fide believed that he could get vacant possession from the tenant. He next contended that if the tenant is not summarily evicted under section 269UE(2) and (3) of the Act, eviction under the Public Premises Act or any other law may be a long-drawn process and receiving the balance price will be postponed indefinitely. No doubt the owner will be p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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