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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.