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PETITIONER: ADAIR DUTT & CO. INDIA PVT. LTD.

       Vs.

RESPONDENT: THE APPROPRIATE AUTHORITY INCOME TAX DEPARTMENT.

DATE OF JUDGMENT:       25/09/1996

BENCH: KULDIP SINGH, K.T. THOMAS

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      THOMAS, J.      Whether a  bona fide  statutory tenant has the right to continue in  possession even  after an order of purchase was made under  Section 269-UE (1) in Chapter XX-C of the Income Tax Act,  1961 (for  short ‘the Act’), is the question sught to be  raesed in this appeal. Accroding to the appellant the answer to the said question must be in the affirmative.      A brief sketch of the facts:      The appellant  - a  Private Limited Company - is tenant on the  ground floor of a building situate on the Mount Road (now called  Anna Salai), Madras. On 30.3.1989, owner of the building entered  into an  agreement with another person for sale  of  the  building,  for  a  sum  of  Rs.26  lacs.  The Appropriate Authority  constituted under Chapter XX-C of the Act, on  coming to know of the aforesaid agreement initiated proceedings, in  exercise  of  its  powers  under  the  said Chapter  for  purchase  of  the  building.  He  ordered  the building to  be purchased  by the Central Government for the same consideration  as shown  in the agreement in accordance with section  269-UA(c) of  the Act.  Appropriate  Authority then issued  a communication  to the  appellant informing it that the  building stood vested in the Central Government by virtue of  Section  269-UE(1)  of  the  Act  free  from  all encumbrances with  effect from  22.6.1989. The appellant was requested to  surrender possession  of the  building. A writ petition  was   filed  before   the  High  Court  of  Madras challenging  the   said  communication  and  the  subsequent request. A Division Bench of the Madras High Court dismissed the writ  petition. This  appeal by  special leave  has been filed against the judgment of the Division Bench.      The two  sub-sections of Section 269-UE of Chapter XX-C of the  Act which  are relevant  for this  appeal are quoted below:      "269-UE.  Vesting  of  property  in      Central Government  - (1)  Where an      order  under   Sub-section  (1)  of      Section  269-UD   is  made  by  the      appropriate authority in respect of      an immovable  property referred  to

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    in sub-clause  (i) of clause (d) of      Section   269-UA,   such   property      shall, on  the date  of such order,      vest in the Central Government free      from all encumbrances.      (2) 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  269-UD  is  made,      shall    surrender    or    deliver      possession    thereof     to    the      appropriate authority  or any other      person  duly   authorised  by   the      appropriate   authority   in   this      behalf within  fifteen days  of the      service order on him."      The contention  of the appellant before the Madras High Court was  two-fold. First is that as the Constitution Bench of this  Court in  C.B. Gautam  vs. Union  of India  & Ors., (1983) 1  SCC 78,  has struck down the expression "free from all encumbrances" in sub-section (1) of section 269-UE, what was vested  with the Central Government is only the right of the erstwhile  owner of  the building  without affecting the leasehold right of the appellant. Second is that appellant‘s right in  the building  has been protected by the Tamil Nadu (Lease and  Rent Control)  Act, 1960  (for short  ‘the  T.N. Act’) and  as such  his statutory  right connot be by-passed through the vesting process.      Division Bench  of  Madras  High  Court  repelled  both contentions. Learned  Judges pointed out that the transferor has stipulated  in the  agreement for  sale dated  30.3.1989 (which led  to the action take by the Appropriate Authority) that the  transfer of  the premises  shall be  free from all encumbrances and then held: "when the agreement in this case provides for  a sale  free of all encumbrances, the property agreed to  be sold would also vest in the Central Government free  of  such  encumbrances.  Only  in  a  case  where  the agreement does  not provide that the sale would be free from all encumbrances  holder of  leases in possession may not be obliged to  deliver possession  of the  property". Regarding the second  contention the  High Court pointed out that even otherwise the  provisions of  the T.N. Act do not afford any protection to  the tenants of the buildings owned by Central Government.      The Constitution  Bench of  this court  has struck down the words  " free  form all encumbrances" in sub-section (1) of Section  269-UE of  the Act.  The material portion of the judgment is extracted below:      "In view  of the  express provision      in section 269-UE that the property      purchased would vest in the Central      it is not possible to read down the      section  as  submitted  by  learned      Attorney General.  In  the  result,      the  expression   ‘free  from   all      encumbrances’ in sub-section (1) of      Section 269-UE  is struck  down and      sub-section (1)  of Section  269-UE      must be read without the expression      ‘free from  all encumbrances’  with      the result the property in question      would   vest    in   the    Central      Government    subject    to    such      encumbrances     and      leasehold

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    interests as are subsisting thereon      except for  such  of  them  as  are      agreed to  he discharged  by    the      vendor   before    the   scale   is      completed."      However, the  Bench approved  the distinction  that  in case the  agreement for sale contains the stipulation to the effect that  the  property  would  be  sold  free  from  all encumbrances or certain encumbrances then the vesting in the Central Government would be free form such encumbrances. The following passage in the judgment makes the position clear:      "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  fro      purchase  of  such  property  under      Section  269-UD  (1)  in  the  said      Chapter would  result in  the  said      property   such   encumbrances   or      leasehold interests. In such a case      the holders of the encumbrances and      leasehold interests from the amount      awarded as  the purchase  price  to      the owner  of  the  property.  This      appears  to  be  fair  construction      because in such a case the apparent      consideration    such     leasehold      interests or encumbrances......."      It was  not disputed  before us  that the agreement for sale executed by the erstwhile owner, regarding the property in question, contained a stipulation that the property would be sold  free of  all encumbrances. However, learned counsel tried to  get support for this contention from a decision of the Karnataka  High Court  in Tata  Consulting Engineers and another vs.  Union of  India and  others (1994) 206 ITR 237, wherein it has been observed that "the Supreme Court did not specifically consider  a case  which ignoring or suppressing the fact  that the  premised were  in the  occupation  of  a monthly tenant  who had  not agreed to vacate, the agreement of sale,  without referring  to such  tenancy, provided  for delivery of  vacant possession  at the time of sale. Chapter XX-C also does not provide for a case where the agreement of sale   contained    an   incorrect   information   regarding possession, that  is agreeing  to deliver  vacant possession even though  vacant possession could not be delivered having regard to  the fact that the premises were in the occupation of a  bona fide  tenant." The Karnataka High Court concluded that "on  the facts  and circumstances  set out above, in so far as  the tenant  is  concerned,  the  term  of  the  sale agreement providing for delivery of vacant possession should be read  down as  only  providing  for  delivery  of  vacant possession of the remaining portions of the premises."      The said  view of  the  learned  single  judge  of  the Karnataka High Court is not in consonance with the reasoning of this  Court in C.B. Gautam (supra). The position has been clearly stated by this Court in the judgment as follows:      " 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  269-UA. In      this connection,  we may  refer  to      sub-section (5)  of Section  269-UE

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    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 tin  the case  we      have   just    referred   to,   the      encumbrance holder of 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      269-UD."      In this  context we may point out that the Constitution Bench in C.P. Gautam (supra) considered whether such vesting in the  Central Government  would affect  monthly tenancies. The following  observation  has  been  made  regarding  that aspect:      "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      provide    for    vacant    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      269-UD (1) ; but such tenants would      lose the  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."           (emphasis supplied)      Learned counsel  for the  appellant, however  contended that the  T.N. Act  applies even  to buildings  owned by the Central  Government  and  hence  the  aforesaid  observation connot apply  to the  tenancy rights  protected by  the said Act. We agree that the Constitution Bench has not considered the situation  where the  monthly tenancy  is protected by a rent control  legislation. No  doubt,  learned  judges  have stated in  the impugned  judgment that  "in relation to such statutory tenancy  rights there  is no  protection  as  such available, as  the rent  control laws  are  inapplicable  to properties  owned   by  the   Central  Government  and  such tenancies could be terminated by the Government."      The aforesaid  finding in the impugned judgment is also challenged in  this appeal.  Learned counsel  contended that though the  T.N. Act  excludes government buildings from its

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purview such exclusion is confined to buildings owned by the State Government  because of the definition contained in the T.N.  Act   for  the   word  "building"  as  meaning  "State Government".      We think  that the  question regarding  application  of T.N. Act  to buildings  owned by the Central Government must be considered  afresh by  the High  Court  in  view  of  the aforesaid contention.  We, therefore, set aside the judgment under challenge  and remit  this case  to the High Court for disposal of  the writ  petition afresh  in the  light of the observations made above.