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CASE NO.: Appeal (civil)  3376-3377 of 2000

PETITIONER: Krishnaswamy S.Pd. and Anr

RESPONDENT: Union of India and Ors

DATE OF JUDGMENT: 21/02/2006

BENCH: ARIJIT PASAYAT & R.V. RAVEENDRAN

JUDGMENT: J U D G M E N T

ARIJIT PASAYAT, J.

       Challenge in these appeals is to the judgment rendered by a  Division Bench of the Karnataka High Court dismissing the Writ  Petitions filed by the appellants.  

The factual background in a nutshell is as follows:

       The fourth Respondent and appellants entered into an agreement  of sale dated 16.7.1987 in respect of  premises bearing  No.377 R.M.V.  Extension, Bangalore measuring 50’ x 90’.  The total consideration was  fixed at Rs.18,00,000/-. Appellants paid a sum of Rs.6,00,000/- by two  cheques dated 16.7.1987 to the fourth respondent and the balance  consideration was agreed to be paid at the time of registration of sale  deed.  The parties to the agreement were required under Chapter XX-C of  the Income Tax Act, 1961 (in short the ’Act’) read with Rule 48(L) of the  Income Tax Rules, 1962 (in short the ’Rules’) to file a Statement  in Form  No.37-I before the appropriate authority specified under Chapter XX-C.  Accordingly, appellants and fourth respondent filed Form No.37-I along  with certain documents on 29.10.1987. Thereafter, the appropriate  authority passed an order dated 18.12.1987 purported to be under  Section 269UD(1) of the Act, for pre-emptive purchase of the said  property by the Central Government at an amount equal to the apparent  consideration. It was stated that the reasons were recorded separately.  The said order dated 18.12.1987 was challenged before the Karnataka  High Court in W.P. Nos. 247-248 of 1988. Challenge in the writ petitions  was to the constitutional validity of Chapter XX-C of the Act with  consequential prayer to quash the order dated 18.12.1987.

The High Court stayed the order of purchase dated 18.12.1987 on  7.1.1988. The interim order of stay was subsequently modified on  13.1.1988 by staying only the delivery of possession under Section 269-UE  and further proceedings pursuant to vesting subject to the condition that  the transferees and the transferor shall not effect any change in the nature  and character of the property or alienate or encumber the property during  the pendency of the writ petition. On 1.8.1991, the High Court vacated the  interim stay by the following order :

"After hearing both the learned Counsel, we are  of the view that stay of delivery of possession  ordered by the learned Single Judge cannot be  continued. Accordingly, the stay is vacated.  Therefore, the transferor-respondent-4 W.G.S.  Saldhana shall deliver possession in favour of  respondent-3. the Income Tax Officer, without

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any demur. Within two weeks from the date of  delivery of possession, the said W.G.S.Saldhana  shall be paid by the Revenue whatever amount  is due to him. It is open to the Department to  bring the property to public auction. We make it  clear that the order relating to delivery of  possession and payment of amount shall be  subject to the ultimate result of the writ  petitions.

Sri. Sarangan, learned Counsel for the  petitioners states that a sum of Rupees Six  Lakhs paid by way of advance under the  agreement dated 16/7/1987 may be refunded.

It is open to the writ petitioners to seek refund of  the same from the transferor namely,  respondent-4."

In view of the vacating of the interim stay, the title-deeds relating  to the property were delivered by the owner to the Income-Tax  Department on 27.8.1991. The entire sale consideration paid by the  Department was accepted by the owner before 15.9.1991. The acquired  property was auctioned by the Department on 26.3.1992. The 7th  respondent herein was the highest bidder and his bid of Rs.46 lacs was  accepted and on payment of the said price, he was put in possession on  25.5.1992. A sale-deed was executed in favour of 7th respondent  by the  Department on 20.7.1994. The auction purchaser was impleaded as 7th  respondent in the writ petition on 25.8.1997.  

During the pendency of the said writ petitions, a Constitution  Bench of this Court by its judgment rendered on 17.11.1992, upheld the  constitutional validity of Chapter XX-C of the Act in C.B. Gautam v.  Union of India & Ors. [1993 (1) SCC 78]. While so doing, this Court,  however, held that before an order for compulsory purchase is made  under Section 269-UD, the intending purchaser and the intending seller  must be given a reasonable opportunity of showing cause against the  order for compulsory purchase being made by the appropriate authority.  This Court further held that the provisions of Chapter XX-C are to be  resorted to only where there is significant undervaluation of the  immovable property to be sold in the agreement of sale with a view to  evading tax and that an order for compulsory purchase under Section  269-UD is required to be supported by reasons in writing and such  reasons must be germane to the object for which Chapter XX-C was  introduced in the Income Tax Act, namely, to counter attempts to evade  tax. Reading down of section 269-UD in the above manner, to uphold its  validity, necessitated issue of certain consequential directions. We  extract below the relevant portions thereof :  "In view of the fact that the object of the  provisions of Chapter XX-C is a laudable object,  namely, to counter evasion of tax in transactions  of a sale of immovable property, we consider it  necessary to limit the retrospective operation of  our judgment in such a manner as not to defeat  the acquisitions altogether. We find that if the  original time frame prescribed in Chapter XX-C  is rigidly applied it would not be possible for the  appropriate authority concerned to pass an  order under Section 269UD(1) at all in respect of  the property in question. In order to avoid that  situation and, yet to ensure that no injustice is  caused to the petitioner, we order, in the facts  and circumstances of the case, that the  statement in Form 37-I submitted by the

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petitioner as set out earlier shall be treated as if  it were submitted on the date of the signing of  this judgment. Thereafter if the appropriate  authority considers it fit, it may issue a show  cause notice calling upon the petitioner and  other concerned parties to show cause why an  order for compulsory purchase of the property in  question should not be made under the  provisions of Sub-section (1) of Section 269UD  and give a reasonable opportunity to the  petitioner and such other concerned parties to  show cause against such an order being made.  In view of the limited time-frame this will have to  be done with a sense of urgency. If after such an  opportunity is given the appropriate authority so  considers it fit, it may hold an inquiry, even  though summary in nature, and may pass an  order for compulsory purchase by the Central  Government of the property in question under  Section 269UD(1). The appropriate authority will  have to decide whether an inquiry is called for in  the facts and circumstances of the case after the  show cause notice is issued\005\005\005\005\005. 43. We may clarify that as far as completed  transactions are concerned, namely, where after  the order for compulsory purchase under  Section 269UD of the Income Tax Act was made  and possession has been taken over,  compensation paid to the owner of the property  and accepted without protest, we see no reason  to upset those transactions and hence, nothing  we have said in the judgment will invalidate  such purchases. The same will be the position  where public auctions have been hold of the  properties concerned and they are purchased  by third parties. In those cases also nothing  which we have stated in the judgment will  invalidate the purchases." [Emphasis supplied]

Subsequently, on 27.11.1992, this Court issued certain  clarifications in regard to the directions in C. B. Gautam’s case (supra),  in regard to pending matters. As cases where public auctions had  already been held were excluded from the directions relating to pending  matters, the clarifications did not apply to such cases.  

The writ petitions filed by the appellants were taken up for hearing  by the Karnataka High Court after the decision in C. B. Gautam’s case  (supra).  The only point urged by the Appellants at the hearing of the writ  petitions was that  in the impugned order no reasons were stated, as to  on what basis the valuation of the property was arrived at and since the  order was non-reasoned without giving opportunities to the appellants  the same was liable to be quashed.  

       Stand of the appropriate authority on the other hand was that  decision of this Court in C. B. Gautam’s case (supra), was squarely  applicable to the facts of the case. It was pointed out that instead of  declaring the provision unconstitutional, as it did not provide for grant of  an opportunity to the affected persons, the provision was read down and  it was held that such a requirement was inbuilt as a part of the  principles of natural justice. It was, however, noted in the clarificatory  order that whenever the transactions were completed, the property was  purchased under pre-emptive right to purchase by the Central  Government, and the amount was returned back to the vendor or the  purchaser and the possession of the property was taken without protest,

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there is no necessity of again giving a notice and extending an  opportunity which was binding in case of others. It was pointed out that  in the case at hand, the authority had already exercised its powers and  the amount was returned to the vendor and the possession was taken.

The High Court held that the crucial question to be determined  was whether the impugned order was liable to the quashed on the  ground that no reasons were given and reasons stated to be separately  recorded were not supplied to the appellants and it amounted to denial of  principles of natural justice.  The High Court noted that the impugned  order of the appropriate authority reads as follows:

"In view of the rival contentions, the question of law  that arises for consideration is whether the impugned  order is liable to be quashed on the ground that no  reasons are given nor reasons separately recorded are  supplied to the petitioners as it amounts to denial of  principles of natural justice to the petitioners."   

       After examining the facts it was noted that separately recorded  reasons were not supplied to the appellants and the appellants were thus  not provided with an opportunity before arriving at the conclusions.  But  it was held that because of the clarificatory order of this Court the  appellants were not entitled to any relief in the instant case. With  reference to the interim order it was held that the fact situation was  clearly covered by the clarificatory order of this Court in C. B. Gautam’s  case (supra). It was noted that though the interim order is always subject  to the final order the fact situation was different as the transaction had  already been completed, possession of the property had been given and  the amount had been returned back and the same was received without  protest. Merely because the writ petitions were pending it cannot be said  that the transaction was not completed.  

       In support of the appeals, Mr. TLV Iyer, learned senior counsel has  submitted that the order dated 1.8.1991 on which the High Court placed  reliance itself made it clear that the same was subject to the result of the  writ petitions.  No prejudice should be caused to a party by an order of  the Court. Therefore, the ratio in C. B. Gautam’s case (supra),, more  particularly, the clarificatory order was not applicable to the facts of the  case. If any act is done pursuant to the order of the Court the same is  subject to the result of the writ petitions and it cannot be affected.  Reference was made to paragraphs 41, 42, 43 and 46 of C. B. Gautam’s  case (supra), in this context. Even if there was any auction sale by the  Income Tax Department the principle of lis pendens was clearly  applicable. The position would have been the same if there would not  have been any interim order, and the final order in the writ petitions  would have covered the matter.  

       In response, learned counsel for the auction purchaser submitted  that interestingly the prospective vendor had not questioned either the  legality of the order dated 18.12.1987 or the judgment of the High Court.  In the auction sale the amount that had been paid is Rs.46 lakhs which  was almost triple of the amount which was purportedly agreed to be paid  originally. The protection given by the interim order that the actions  indicated which determined would be subject to the result of the writ  petitions were restricted to delivery of the property, which involved the  prospective vendor and the department. The second condition was the  payment of the amount by the department to the proposed vendor. In  this transaction also the proposed purchaser was not involved. So far as  the auction sale is concerned that was not subject to the final outcome.  

It was, however, pointed out by learned counsel for the appellants  that the third situation was clearly linked with the first two and the  doctrine of lis pendens clearly applied to such a purchase.

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       There is no quarrel with the proposition as advanced by learned  counsel for the appellants that an act of a Court cannot affect a party. In  South Eastern Coalfields Ltd. v. State of M.P. and Ors. (2003 (8) SCC  648), it was noted as follows: "28.    That no one shall suffer by an act of the Court is  not a rule confined to an erroneous act of the court;  the ’act of the court’ embraces within its sweep all  such acts as to which the court may form an opinion  in any legal proceedings that the Court would not have  so acted had it been correctly apprised of the facts and  the law. The factor attracting applicability of  restitution is not the act of the Court being wrongful or  a mistake or error committed by the court; the test is  whether on account of an act of the party persuading  the Court to pass an order held at the end as not  sustainable, has resulted in one party gaining an  advantage which it would not have otherwise earned,  or the other party has suffered an impoverishment  which it would not have suffered but for the order of  the Court and the act of such party. The quantum of  restitution, depending on the facts and circumstances  of a given case, may take into consideration not only  what the party excluded would have made but also  what the party under obligation has or might  reasonably have made. There is nothing wrong in the  parties demanding being placed in the same position  in which they would have been had the Court not  intervened by its interim order when at the end of the  proceedings the Court pronounces its judicial verdict  which does not match with and countenance its own  interim verdict. Whenever called upon to adjudicate,  the Court would act in conjunction with what is the  real and substantial justice. The injury, if any, caused  by the act of the court shall be undone and the gain  which the party would have earned unless it was  interdicted by the order of the court would be restored  to or conferred on the party by suitably commanding  the party liable to do so. Any opinion to the contrary  would lead to unjust if not disastrous consequences.  Litigation may turn into a fruitful industry. Though  litigation is not gambling yet there is an element of  chance in every litigation. Unscrupulous litigants may  feel encouraged to approach the Courts, persuading  the court to pass interlocutory orders favourable to  them by making out a prima facie case when the  issues are yet to be heard and determined on merits  and if the concept of restitution is excluded from  application to interim orders, then the litigant would  stand to gain by swallowing the benefits yielding out of  the interim order even though the battle has been lost  at the end. This cannot be countenanced. We are,  therefore, of the opinion that the successful party  finally held entitled to a relief assessable in terms of  money at the end of the litigation, is entitled to be  compensated by award of interest at a suitable  reasonable rate for the period for which the interim  order of the Court withholding the release of money  had remained in operation.  29.     Once the doctrine of restitution is attracted, the  interest is often a normal relief given in restitution.  Such interest is not controlled by the provisions of the  Interest Act of 1839 or 1978."  

       But the crucial question is whether the appellants were protected

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by the order of the Court by which earlier interim order was vacated. As  noted in Eastern Coalfields’s case (supra) while adjudicating the question  as to any relief can be granted, the same can be modified to do real and  substantial justice.  It is not a case where a right has been created and  another party is impoverished because of the order dated 1.8.1991  passed by the High Court.  

The maxim ’actus curiae neminem gravabit’ i.e. an act of Court  shall prejudice no man is an important one. The maxim "is founded  upon justice and good sense, and affords a safe and certain guide for the  administration of the law", said Cresswell J. in Freeman v. Tranah (12  C.B. 406). An unintentional mistake of the Court which may prejudice  the cause of any party must and alone could be rectified.  

       The maxim of equity, namely, actus curiae neminem gravabit \026 an  act of court shall prejudice no man, is founded upon justice and good  sense which serves a safe and certain guide for the administration of law.   The other relevant maxim is, lex non cogit ad impossibilia \026 the law does  not compel a man to do what he cannot possibly perform.  The law itself  and its administration is understood to disclaim as it does in its general  aphorisms, all intention of compelling impossibilities, and the  administration of law must adopt that general exception in the  consideration of particular cases.  (See: M/s U.P.S.R.T.C. v. Imtiaz  Hussain (2006 (1) SCC 380), Shaikh Salim Haji Abdul Khayumsab v.  Kumar and Ors. (2006 (1) SCC 46), Mohammod Gazi v. State of M.P. and  others (2000(4) SCC 342) and Gursharan Singh v. New Delhi Municipal  Committee (1996 (2) SCC 459).  

       One thing is crystal clear from the order dated 1.8.1991 that the  appellants wanted to take back the money that had been paid to the  prospective vendor. Submission was made on behalf of the appellant that  a sum of Rs.6 lakhs paid by way of advance may be refunded. By seeking  the return of the advance, the appellants have acquiesced to the property  being sold in auction. In the order it was clearly mentioned that it was  open to the writ petitioners (the present appellants) to seek refund of the  same from the transferor namely, respondent No.4.

       The controversy can be looked at from another angle.  This Court  in Union of India and Ors. v. Shatabadi  Trading & Investment Pvt. Ltd.  and Ors. (2001 (6) SCC 748) dealt with a somewhat similar issue. In  paragraphs 3 and 9 of the judgment it was noted as follows: "3.     The High Court admitted the writ petition and  granted interim order of stay restraining the  Department from proceeding further in the matter.  Against the said interim order, a special leave petition  was preferred before this Court. During the pendency  of the proceedings before this Court, an order was  made on 25-4-1994 directing that the property be  auctioned subject to bid confirmation by this Court.  Auction was held and Smt. Anju Jain, Mr. Vineet Jain  and Mr. Manish Jain as the highest bidders of the  property offered their bid at Rs. 4.01 crores and  permission was sought for confirmation of the same.  Various pleadings were raised in those proceedings to  the effect that the auction itself was a farce and stage- managed by the appropriate authority in collusion  with Mr. Vinod Jain and the property was purchased  by him in the name of his wife and two sons for Rs.  4.01 crores and that if the said bid was allowed, it  would be a fraud on the Government and public  exchequer and the writ petition filed before the High  Court challenging the validity of the proceedings  initiated under Chapter XX-C was yet to be  considered. However, this Court after hearing the  matter at length rejected the said objections of the

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intending purchasers and confirmed the same on 19- 9-1994. A sale deed has been executed by the  appropriate authority in favour of the highest bidders  and it is significant to note that the original owner of  the property Arjun Anand, Respondent 9 herein has  not challenged the aforesaid impugned order of the  Department and in fact without any protest received a  sum of Rs. 1.75 crores from the Department and a  further amount of Rs. 14,03,500 by way of interest. He  had accepted the amount without any protest and has  not contested the matter either in the High Court or in  this Court and thereafter the said SLP (C) No. 6040 of  1994 filed by the appropriate authority along with  other connected matters was disposed of as having  become infructuous in view of the auction-sale held  and confirmation thereof by this Court.          xxx                     xxx                     xxx 9.      There is one other factor which is very  significant, namely, that this Court having allowed the  auction of the property in question ending  confirmation of the same and that order having  become final, now to allow the order made by the  appropriate authority to be set aside and to permit the  parties to work out in appropriate proceedings for  restitution of the property would lead to a serious  anomalous position. When the transferor without  demur allowed the property to be sold pursuant to the  orders of this Court and that sale having taken place  and this Court having affirmed the same and the  proceedings by way of SLP filed under Article 136 of  the Constitution coming to an end as having become  infructuous, the High Court could not have brushed  aside that sale in the manner it has been done. The  impact of such decision ought to have been taken note  of by the High Court. Indeed in K. Basavarajappa v.  Tax Recovery Commr. ((1996) 11 SCC 632) this Court  has held that an agreement to sell creates no interest  in the property and in the absence of a decree of  specific performance of an agreement even though  authorized by the general power-of-attorney holder of  the original owner of the property (sic the purchaser,  the appellant therein) had no locus standi to move an  application for setting aside the auction-sale on offer  to deposit full tax dues. If we extend the said principle  to the present facts, we find it hardly possible to come  to the conclusion the High Court has arrived at. It is  possible that the writ proceedings were still pending  before the High Court but those writ proceedings were  not at the instance of the owner of the subject property  and the agreement-holder did not have any interest  other than what was indicated in K. Basavarajappa  case ((1996) 11 SCC 632). In that view of the matter,  we do not think the High Court should have ignored  the effect of the same".  

It is thus clear that the requirement relating to hearing read  into the provisions of Section 269D by this Court will not apply to  transactions which have become final or transactions where the  department      has already auctioned the acquired property.         In view of the factual position noted above, tested in the  background of legal principles set out in C.B. Gautam’s and Shatabadi  Trading Cases (supra) it is clear that there can be no interference as the  property which is the subject matter of the compulsory purchase under  Section 269UD had already been sold by public auction before the  decision in C. B. Gautam’s case (supra), and as there was no challenge

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by the owner of the property. As a consequence, the inevitable result is  dismissal of the appeals which we direct. No costs.