-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE WRIT PETITION NO.1253 OF 1995 Kirloskar Power Equipments Limited (formerly known as Voltas Transformers Ltd.) .. .. Petitioner Versus 1. R.R.Bajoria, Commissioner of Income-tax. 2. L.K.Koolwal, Commissioner of Income-tax. 3. M.B. Kodnani 4. Union of India 5. Voltas Ltd. .. .. Respondents Mr.Persy Pardiwala i/by M/s.Mulla & Mulla for petitioner. Mr.M.I. Sethna with Mr.Ashokan for respondent Nos.1 to 4. Mr.Sachin Chandarana i/by M/s.Manilal Kher Ambalal & Co. for respondent No.5. ------ CORAM : H.L. GOKHALE, ACTING C.J. & CORAM : H.L. GOKHALE, ACTING C.J. & CORAM : H.L. GOKHALE, ACTING C.J. & J.P. DEVADHAR, JJ. J.P. DEVADHAR, JJ. J.P. DEVADHAR, JJ. DATE OF RESERVING THE JUDGMENT: 5th December 2006 DATE OF RESERVING THE JUDGMENT: 5th December 2006 DATE OF RESERVING THE JUDGMENT: 5th December 2006 DATE OF PRONOUNCING THE JUDGMENT: 22nd February DATE OF PRONOUNCING THE JUDGMENT: 22nd February DATE OF PRONOUNCING THE JUDGMENT: 22nd February 2007 2007 2007 JUDGMENT : (Per H.L.Gokhale, Acg. C J.) JUDGMENT : (Per H.L.Gokhale, Acg. C J.) JUDGMENT : (Per H.L.Gokhale, Acg. C J.) 1. This Writ Petition under Article 226 of the Constitution of India seeks to challenge and set aside the order dated 23rd February 1995 passed by respondent Nos.1 to 3, whereby the property which was to be purchased by the petitioner-Company from respondent No.5 was -2- directed to be compulsorily acquired by respondent Nos.1 to 3 acting together as the Appropriate Authority under Chapter XX-C of the Income Tax Act, 1961 (for short "the said Act"). Respondent No.4 to this Petition is Union of India. The impugned order has been stayed during the pendency of this Writ Petition but the formal order of issuance of Rule remained to be passed. Hence, we issue Rule on the Petition. Replies and further Affidavits are already filed by the parties. 2. Brief facts leading to this Petition are as follows:- . Respondent No.5 was carrying on amongst other activities the business of manufacturing the electric transformers at its factory situated at Nagar Road, Pune. Sometimes in March 1993 Voltas Transformers Ltd. (the petitioner referred by its earlier name) was incorporated as a wholly owned subsidiary of respondent No.5 with the main object of taking over the transformer business of respondent No.5. The entire shareholding of respondent No.5 in this Voltas Transformers Ltd. has been subsequently transferred in favour of Kirloskar Group of Companies. The name of Voltas Transformers Ltd. was thereafter changed to the present name viz. Kirloskar Power Equipments Limited (the petitioner herein). The certificate -3- issued by the Registrar of Companies dated 10th January 1996 was produced in this proceeding by filing a Civil Application bearing No.2133 of 2004 and this Court by its order passed on 16.12.2004 permitted the substitution of the name of Kirloskar Power Equipments Limited in place of Voltas Transformers Ltd. as the petitioner. 3. Four Agreements were entered into after the incorporation of Voltas Power Equipments Limited between it and respondent No.5, details of which are as follows:- (i). By the first Agreement dated 30th September 1993, it was agreed that respondent No.5 will transfer to Voltas Transformers Ltd. the transformer undertaking as a going Concern together with all its employees and assets and properties consisting of immovables, movables, liabilities etc. (ii). Accordingly, by a Deed of Assignment and the Transfer of Undertaking dated 7th July 1994 entered into between the two parties, respondent No.5 transferred the undertaking as a going Concern. This was for a consideration of Rs.9.42 Crores. -4- (iii). Thereafter the third document was entered into between the parties on 13th July 1994 which was a Deed of lease of that very land. This lease was for a period of eight years for a consideration of Re.1/- per year. The land leased out was admeasuring approximately 39,545.50 Square Meters on which the factory building was standing. (iv). The fourth document was entered into between the parties on 11th November 1994, whereby the parties mutually agreed to extend this period of lease for a period of 99 years with effect from 1st April 1995 for a one time consideration comprising of a premium of Rs.80 Lakhs with a lease rent of Re.1/- per annum. 4. This fourth document was lodged with the Appropriate Authority along with the prescribed Form 37-I duly signed by respondent No.5 - Voltas Limited on the very day as per the requirement of Section 269 UC(3) of the said Act. Respondent No.5 thereafter received on 14th February 1995 a Notice dated 9th February 1995 from the Appropriate Authority to show cause as to why an order under Section 269UD (1) of the said Act should not be made directing the purchase of the -5- said property by the Central Government for an amount equal to the apparent consideration of Rs.80 Lakhs specified in the Agreement dated 11.11.1994. This was on the basis of a solitary sale instance as stated in the Notice, of a certain land at Vadgaon Sheri nearby Pune which was agreed to be sold by the parties to on Agreement dated 27th August 1992 for a consideration of Rs.51 Lakhs. The total area of that property was 7062.43 Square Meters and the rate per Square Meter of FSI was worked out as Rs.577/-. The discounted rate was reduced to Rs.568/-, whereas the rate of the petitioner’s property (after reducing the estimated value of the building thereon) was arrived at Rs.244/-. The notice called upon respondent No.5 to remain present at 3.30 p.m. on the very day of the receipt of notice i.e. on 14th February 1995 at the Ayakar Bhavan, Pune. Hence, on the next day which was at the earliest i.e. on 15th February 1995 the 5th respondent gave an application to the Appropriate Authority. It was signed by one Mr.B.D. Mehta, their General Manager. The said letter reads as follows:- " We have received your above Notice dated 9.2.95 on 14.2.95 in the evening, asking -6- us to attend before you on 14.2.95. In view of the late receipt of the Notice, we would request you to kindly let us have an another date for hearing with sufficient notice. " 5. It is the case of the petitioner that in spite of giving of this letter the proceeding was adjourned only to the next day i.e. on 16th February 1995 when the officers of respondent No.5 were asked to give their written submissions which they accordingly submitted on that date. This reply consisted of 16 paragraphs. In paras 12 and 13 with respect to the merits of their case respondent No.5 stated as follows:- "12. Even on merit, we would like to submit as follows : a) The proposed transfer involves lease of land and not outright sale. b) The consideration stipulated in the Agreement is fair and reasonable and represents the current market value of land. In fact, no transaction for sale of land as such in the vicinity of the said -7- Undertaking seems to have taken place in the recent past. c) The instance of property cited in the Appropriate Authority’s letter dated 9.2.95 is clearly distinguishable. It was a case of the sale of land and building together. Further, we understand that the actual sale of the said property has not taken place till date, as per ‘7/12’ record. Landlord of the bungalow i.e. original seller, continues to stay there. d) The Sale Instance Property (SIP) referred to in the notice relates to alleged sale transaction in Vadgaon Sheri, Pune. The Property Under Consideration (PUC) is situate in Lohagaon which is a different area. The PUC transaction is of lease whereas the SIP transaction is allegedly a sale. The PUC transaction is in respect of an encumbered property because it flows from and is incidental to the transfer of an Industrial Undertaking as a going concern with all its rights and liabilities. Besides, the transferor continues to have a right of access -8- through the PUC to the adjacent property of the transferor. The SIP is not, therefore, a comparative transaction in any manner. 13. On similar facts, the Appropriate Authority, Ahmedabad has approved a transfer of property (from Voltas and another) vide No.AHD/AA/796/93-94 dated 24.5.94. " Further, in paragraphs 15 and 16 it is stated as follows:- " 15. The Show cause notice 9.2.95 required us to attend a hearing before the Appropriate Authority on 14.2.95 at 3.30 p.m. at Pune. This notice was received by us at Bombay on the evening of 14.2.95. The said notice though dated 9.2.95 appears to have been despatched by the Ahmedabad Office of the Appropriate Authority on 13.2.95 by Speed Post. Immediately on the receipt of the notice, we responded by our letter of 15.2.95 requesting for sufficient time. This -9- letter of 15.2.95 was delivered at the Pune Office at the Appropriate Authority at 3.00 p.m. on 15.2.95. Our representative who delivered this letter was notified that the hearing stands refixed at the same venue at 3.00 p.m. on 16.2.95. Besides, the transferee i.e. Voltas Transformers Ltd. which also has its office at the same location as the transferor, and who is a material party to the transaction does not appear to have received the said notice till 15.2.95. 16. Having regard to what we have stated in respect of SIP, it would be just, fair and proper that we are furnished with more details of SIP and given sufficient time to make enquiries about SIP / other comparable transactions, if any, so that the transaction of PUC is evaluated in right perspective. " 6. The case of the petitioner is that the petitioner was not served with any notice and the representation made by respondent No.5 was also -10- not properly considered. Respondent Nos.1, 2 and 3 thereafter proceeded to pass an order directing the purchase. This order was passed on 23rd February 1995. In para-4 of the order, the appropriate Authority rejected the submissions of respondent No.5. In sub-para (i) thereof, it recorded that the present transaction related to the land only and not an entire business undertaking as claimed. In sub-para (ii) it justified the calculation of the rate. In sub-para (iii) it observed that the property of the petitioner and the subject instance property were situated at equi-distance from Pune and the property of the petitioner was in fact at a superior location. In sub-para (iv), the appropriate Authority recorded that in the present case the transaction was only in respect of a lease and the case of similar transfer at Ahmedabad was cleared on 24th November 1994 by appropriate Authority for the composite transfer of going business with land. The appropriate Authority, therefore, directed the compulsory purchase which is under challenge in the present Petition. 7. Mr.Pardiwala, learned Counsel appearing for the petitioner, submitted that the judgment of -11- the Apex Court in C.B. Gautam vs. Union of India C.B. Gautam vs. Union of India C.B. Gautam vs. Union of India & ors. reported in 199 (1993) ITR page 530 & ors. reported in 199 (1993) ITR page 530 & ors. reported in 199 (1993) ITR page 530 laid down that the transferor and the transferee must get a reasonable opportunity. Accordingly, sub-section (1A) was added in Section 269UD with effect from 17.11.1992. This sub-section (1A) reads as follows:- " (1A) before making an order under sub-section (1), the appropriate authority shall give a reasonable opportunity of being heard to the transferor, the person in occupation of the immovable property if the transferor is not in occupation of the property, the transferee and to every other person whom the appropriate authority knows to be interested in the property. " He, therefore, submitted that it was clear that the transferee had to be given a notice before any order was passed under Section 269 UD(1). 8.(i). The respondents relied upon the order sheet of 16.2.1995 which recorded the presence of Mr.Balghat and Mr.Deo before the competent Authority on that date. An inspection thereof was -12- given to the petitioner. (ii). The petitioner, therefore, has filed the affidavit of the said Mr.D.G. Deo affirmed on 13.11.2006. The said Mr.Deo in this affidavit has stated as follows:- " 1. I was the General Manager (Legal Services) of the Respondent No.5 till 31st October 2006. 2. In response to notice of hearing received from the Appropriate Authority, I along with Mr.B.D. Mehta, the Manager (Taxation) of Voltas Ltd., the Respondent No.5 and Mr.Balghat, the Chartered Accountant of Respondent No.5, attended the hearing before the Appropriate Authority at Poona on 16th February 1995. I say that it has been wrongly noted in the order sheet that I had appeared for the transferee, namely, the Petitioner herein. I never appeared for the transferee and I was never employed by them. I further say that I had not signed the order sheet dated 16th February 1995." -13- (iii). The respondents have thereafter placed the order sheet on record along with the affidavit of one Mr.G.M. Chauhan, Assistant Commissioner of Income-tax in the office of the Appropriate Authority affirmed on 24th November 2006. He has annexed thereto notings of the hearing. These notings also include the notings of 16th February 1995 which are to the following effect:- " 16/2/95 - S/Shri B.D.Mehta, General Manager of Transferor Firm with Balghat, Chartered Accountant and D.G. Deo for transferee Company. Written submissions filed. Sd/- Sd/- Sd/- " (iv). Mr.Pardiwala pointed out that there is no counter of the respondents to the affidavit of Mr.Deo. He submitted that Mr.D.G. Deo was never employed by the petitioner and did not represent them at the time of this proceeding. Similarly Mr.Balghat was Chartered Accountant of respondent No.5 and not of the petitioner and these facts can be ascertained from the audited report of the 5th -14- respondent. 9.(i). The case of the respondents is that the offices of the petitioner and respondent No.5 are situated in the same building at Ballard Estate and the notices were sent to both of them. It is contended by Mr.Sethna, learned Counsel appearing for respondent Nos.1 to 4 that if the notice was received by respondent No.5 there is no reason to accept the submission of the petitioner that it had not received the notice. On this submission, it is stated by Mr.Pardiwala that, in any case, on 15th February 1995 the matter was adjourned to 16th February 1995. Apart from the fact that this was a very short adjournment, there is no record with respondent Nos.1 to 4 to show that any intimation was given to the petitioner. He, therefore, submits that this is in gross violation of the requirements of giving a reasonable opportunity which is now statutorily incorporated in the above-referred Section 269UD (1). (ii). That apart, Mr.Pardiwala pointed out on merits of the order under challenge that in the representation of respondent No.5, it has clearly sought sufficient time to make inquiry about the comparable property. Surely, that ought to have -15- been given. Interestingly, now the petitioner has filed an affidavit of its General Manager Mr.Mohan Purandare affirmed on 16th October 1996, to which he has enclosed a certificate of an Advocate A.B. Arjunwadkar dated 30th March 1995. The learned Advocate made inquiry about the comparable property and has stated in his certificate that this transaction has not gone through at all. He has placed on record the entries from 7/12 extract of the concerned property to point out that the comparable property continued with one Mr.Narendra Agarwal who is supposed to have agreed to sell the said property bearing Survey No.39/2 /1A at Vadgaon Sheri through the Agreement dated 27.8.1992 for Rs.51 Lakhs but the said comparable transaction has not gone through at all. Mr.Pardiwala, therefore, submits that if the petitioner or respondent No.5 was given sufficient time, they would have surely placed this information before respondent Nos.1 to 4 and in which case the impugned order would not have been passed. He further submits that in any case now that this information is available, it is clear that there is no such comparable instance at all of a completed sale transaction, on the basis of which it could be said that the petitioner has indulged into under-valuation. Mr.Pardiwala, -16- therefore, submits that the impugned order is unjustified on merits, apart from being in violation of the statutory requirement of providing the reasonable opportunity under Section 269UD (1A) of the said Act. 10. Mr.Sethna, learned Counsel appearing for respondent Nos.1 to 4, submitted that under the second proviso to Section 269UD, the statutory time-frame for the appropriate Authority to pass the order was restricted to only three months in the cases of statements received after 1st June 1993. That being the position, when the 37-I Form was lodged on 30th November 1994, the time available was only upto 28th February 1995. It is the case of respondent Nos.1 to 4 that the Government got the relevant information only on 23rd January 1992 and thereafter the notice was issued on 9th February 1995 calling the party for the inquiry on 14th February 1995. The proceeding had to be completed by 28th February 1995 and, therefore, longer time could not be given. Mr.Pardiwala submitted thereupon that in any case there was still time of about 13 days after 15th February 1995 and surely, respondent Nos.1 to 4 could have granted the time to the parties of at-least one week, if not more. -17- 11. That apart, Mr.Sethna objects that the petitioner has no locus to file the present Petition to challenge the order of compulsory purchase and that it is only the transferor who could be considered to be the person interested as defined under Section 269UA(e) of the said Act and that the Petition ought to be dismissed on that ground itself. This definition under Section 269UA(e) reads as follows:- " (e) "person interested", in relation to any immovable property, includes all persons claiming, or entitled to claim, an interest in the consideration payable on account of the vesting of that property in the Central Government under this Chapter." As far as this submission is concerned, Mr.Pardiwala submitted that the definition of "person interested" will be relevant for the purposes of deciding as to whether the persons are entitled to lay a claim or interest in the consideration. It cannot mean that other persons who have an interest in the property cannot challenge such an impugned order by invoking -18- Article 226 of the Constitution of India. He submitted that in view of the addition of sub-section (1A) in Section 269UD (which is quoted earlier) the transferee had the right to have a reasonable opportunity before the order of compulsory purchase was passed. If that was so, surely, the transferee had the right to challenge the order since it was aggrieved by the same. It could not be said that the petitioner had the right of a reasonable opportunity at the level of the Appropriate Authority but it could not challenge the decision given by the appropriate Authority. Surely, such a submission cannot be entertained. 12. That apart, Mr.Pardiwala relied upon a few authorities to point out the trend of the judgments in this behalf. To begin with, he referred to a judgment of a Division Bench of the Karnataka High Court in Rajata Trust vs. CIT Rajata Trust vs. CIT Rajata Trust vs. CIT reported in (1992) 193 ITR page 220 reported in (1992) 193 ITR page 220 reported in (1992) 193 ITR page 220 which is against him and which held that the transferee could not challenge the order of the appropriate Authority directing purchase of the immovable property under Section 269UD. The Division Bench had taken the view that the purchaser is not included in the definition of "persons interested" -19- and, therefore, had no right to present a Writ Petition under Article 226 of the Constitution of India. 13. This judgment was cited before a Single Judge of the Calcutta High Court (Smt.Ruma Pal, J. as Her Ladyship then was in that Court) in Hari Hari Hari Krishna Kanoi and anr. vs. Appropriate Authority Krishna Kanoi and anr. vs. Appropriate Authority Krishna Kanoi and anr. vs. Appropriate Authority reported (1994) 207 ITR page 743. reported (1994) 207 ITR page 743. reported (1994) 207 ITR page 743. The learned Judge took the view that the concept of locus standi is much wider than the concept of a person having an interest in the property. The learned Judge observed that the person may be interested in the property without having an interest therein within the legal connotation of the phrase "interest in property". The learned Judge has made it clear that the definition of the phrase "person interested" applies in connection with and is limited to the requirements in the provisions of Chapter XX-C itself. The learned Judge has observed that any other interpretation will mean that the writ petitioners will be deprived of the valuable right of purchasing the property in question, the right which has been recognised and which is otherwise protected under Section 40 of the Transfer of Property Act, 1882 and the Specific Relief Act, 1963. -20- 14. It is material to note that this judgment in the case of Hari Krishna Kanoi Hari Krishna Kanoi Hari Krishna Kanoi (supra) was rendered on 11th September 1992 i.e. two months prior to the judgment rendered by the Apex Court in C.B. Gautam’s case (supra) C.B. Gautam’s case (supra) C.B. Gautam’s case (supra) decided on 17th November 1992 and reported in (1993) 199 ITR page 530. In this judgment, the Apex Court in clear terms held that a reasonable opportunity will have to be given to the parties concerned, particularly the intending purchaser and the intending seller and that must be read into the provisions of Chapter XX-C. This was when the provision referred in sub-section (1A) was not included in Section 269UD. The judgment in C.B. Gautam’s case (supra) led to the insertion of this sub-section. This sub-section requires the appropriate Authority to afford a reasonable opportunity to four parties viz. (1) the transferor, (2) the person in occupation, (3) transferee and (4) the person interested. The said sub-section became effective from 17th November 1992 and the show cause notice in the present matter is undoubtedly issued subsequent thereto. 15. It was then submitted on behalf of the -21- respondents that if respondent No.5 - Voltas Limited has not challenged the purchase order, there was no reason for the petitioner to challenge the same. This is because the only effect of the impugned purchase order would be that the petitioner will become the lessee of the Central Government instead of that of respondent No.5. Mr.Pardiwala pointed out thereupon that the factual position is, however, not so. Immediately after passing of the order of compulsory purchase on 23rd February 1995, the respondents served a Notice dated 23rd February 1995 on the petitioner informing them that the property had already vested in the Central Government and the possession of the property will be taken from the transferor on 15th March 1995. The transferor was, therefore, directed to deliver the vacant possession of the property on 15th March 1995 to the authorised person. It is this threat that led the petitioner to file the present Petition which it has filed on 13th March 1995 and to take an order on the same day to stay the implementation of the impugned order of compulsory purchase. 16. With respect to the submission of the respondents that they did not have much time to afford a detailed hearing, Mr.Pardiwala pointed -22- out that the Agreement dated 11th November 1994 was lodged on the same day along with the Form 37-I. The Valuation Officer from the Income Tax Department thereafter sought certain information from the petitioner by his letter dated 29th November 1994. Within about ten days the petitioner forwarded the necessary information to him by its letter dated 8th of December 1994. The Appropriate Authority took more than a month