Registrar of Assurances Vs ASL Vyapar Private Ltd. (Supreme Court of India)
Relevance: Stamp duty -Valuation of immovable property in West Bengal.
Sub- Whether Registrar while registering any immovable property ,the value of which has been determined in a court monitored public auction can apply the provisions of Section 47A of the Indian Stamp Act (West Bengal Amendment) Act, 1990 to allege undervaluation of the property and demand higher stamp duty?
A three judges bench of Supreme Court in this case was dealing with an important issue regarding determination of valuation of a property which itself was arrived in a court monitored auction sale ,the price of which was arrived at after advertisement in a widely circulated newspaper.
Moreover, the price was substantially low in view of more than 100 tenants being there. In a connected matter, the price of the properties was arrived by the Official liquidator where the company was being ordered to be wound up. The registrar in both these cases demanded differential stamp duty in view of Section 47A of the Act.
In SLP before SC, the state argued that the auction sale was often stressed sale and did not reflect the true market price. It was also argued that in view of Section 47 of the Act, the order passed by the Revenue authority could not be challenged before a court of law.
The Supreme Court of India however observing that Section 47A of the Act cannot be said to have any application to a public auction carried out through court process/receiver as that is the most transparent manner of obtaining the correct market value of the property, also noted that undervaluation is not uncommon as payments are made through different method(referring to cash payments).
Nevertheless, the fact that there are tenants in a property leads to substantial erosion of market value and when the Court monitored price has been arrived at , leading the Registrar to have a say on such valuation would amount to Registrar sitting in appeal over the decision of the court permitting the sale.
An auction of a property is possibly one of the most transparent methods by which the property can be sold. Thus, to say that even in a court monitored auction, the Registering Authority would have a say on what is the market price, would amount to the Registering Authority sitting in appeal over the decision of the Court permitting sale at a particular price.
The judgment in V.N. Devadoss16 case albeit in respect of Amendment in Tamil Nadu, opined that it was not a routine procedure to be followed in respect of each and every document of conveyance presented for registration without any evidence to show a lack of bona fides of the parties. There has to be a willful under-valuation of the subject of transfer with fraudulent intention to evade payment of proper stamp duty.
The “reason to believe” of a Registering Officer has to be based on ground realities and not some whimsical determination; the Registering Authority cannot be permitted to doubt the liquidation proceedings as having some superior knowledge when it is a court monitored process where the court would take care of aspects such as cartelization; the Registering Authority can hardly be said to be the only authority with knowledge of the subject to the exclusion of the court; the independent determination by a Registering Officer would not apply to a court sale but to a private transaction.
No doubt a court monitored auction is a forced sale, but then it has a competitive element of a public auction to realize the best possible price. In many court cases, this is the process followed by the court to get the best obtainable price taking due precaution.
Thus the Registrar’s appeal was dismissed.
This decision will have far reaching implication on all Real Estate transactions and it can definitely be used even in income tax proceedings to buttress the fact that encumbrances or the occupation of tenants on the property or any other such external factors can lead to the price being lower than the stamp duty valuation.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Leave granted.
Background:
1. The impugned judgment dated 13.05.2010 in W.P. No. 1295/2009 passed by the High Court of Calcutta decided a reference arising from the following two matters –
(i) State of West Bengal & Anr. v. Sati Enclave Pvt. Ltd. & Ors., a Letters Patent Appeal being APOT No. 196 of 2008 from a partition and administration suit (“the Partition matter”) and,
(ii) ASL Vyapar Pvt. Ltd. v. The Registrar of Assurances & Ors., a Writ Petition being Writ Petition No. 1295 of 2009 (“the Company matter”).
The facts:
2. In Re the Partition Matter: In a Partition Suit being Extraordinary Suit No. 32 of 1987, Ld. Single Judge passed an order dated 15.09.1987 for the sale of Premises No. 20 to 20/14 (except 20/10) Chetla Flat Road, Kolkata- 700027 (“the land”), measuring 41 cottahs and 21 chittacks, i.e. approximately 2800 square metres. On 08.03.2006, the Joint Receivers appointed by the Court issued an advertisement in The Telegraph, a leading daily newspaper for sale of the land. At the auction, several parties participated, and the offer made by one Priya Dutta at the rate of Rs.1,88,500 per cottah was the highest. However, she did not pay the entire earnest money which was stipulated at the rate of 10% of the bid amount. Sati Pvt. Ltd. (R1 in S.L.P.(C) 22197 of 2010) also offered to match the bid amount Rs.1,88,500 and to pay the entire earnest money within 3 days. The court directed default clauses in case of failure to pay the earnest money or consideration amount, such as, if Sati Pvt. Ltd. did not pay the earnest money within 3 days, the joint receivers could proceed to convey the property to the next highest bidder whose bid was for Rs.1,88,000 per cottah.
3. Vide order dated 04.12.2006, Ld. Single Judge accepted the offer of Sati Pvt. Ltd. and confirmed the sale in its favour. It was further directed that the aforesaid consideration being the actual consideration for the property would be treated as value of the property for the purpose of registration and stamp duty. The Joint Receivers executed the conveyance in favour of Sati Pvt. Ltd. and presented the same for registration on 16.05.2007 for sale consideration of Rs.78,69,875. Stamp duty of Rs. 5,48,810 and Registration Fee of Rs. 86,650 were also paid.
4. However, on 14.12.2007, the Registrar of Assurances issued a notice under section 47A (2) of the Indian Stamp Act, 1899 (“the Act”) intimating that the market value of the land was assessed by the Registering Officer at Rs. 7,76,69,838 on which deficit Stamp Duty of Rs.48,85,888 and deficit Registration Fee of Rs. 7,67,800 were required to be paid. Sati Pvt. Ltd. filed a Contempt Application against the Registrar for allegedly committing breach of the order dated 04.12.2006 of the Ld. Single Judge. The Registrar filed an application seeking recalling of order dated 04.12.2006, but the same was rejected. Aggrieved, the Registrar filed an appeal before the Division Bench who referred the question for decision by a larger bench.
5. In Re the Company matter: By an order dated 21.07.2004 of the Ld. Single Judge, M/s. Kayan Udyog Ltd. was ordered to be wound up and the Official Liquidator was directed to take the necessary steps. The Official Liquidator published an advertisement on 12.05.2006 in daily newspapers inviting offers for purchase of assets and properties of the company on “as is where is and whatever there is basis” with a Reserve Price of Rs.1.20 crores and the highest offer received was Rs.75,00,000. The Company Court directed revision of the Reserve Price and to issue a fresh advertisement. In the second advertisement dated 15.09.2006, the Reserve Price was fixed at Rs. 1 crore and the highest offer received was Rs.86,00,000 which was subsequently enhanced to Rs. 87,00,000 when the auction was held in the Company Court.
6. Vide order dated 08.09.2006, the Company Court confirmed the sale in favour of ASL Pvt. Ltd. at Rs.87,00,000 subject to certain conditions of payment within stipulated time periods. On payment of the entire consideration, the Official Liquidator executed the Conveyance Deed on 07.05.2008 and presented the same before the Registrar of Assurance, Calcutta for registration. On 06.08.2008, the Additional Registrar of Assurance-II issued a Demand Notice to ASL Pvt. Ltd. informing that the market value of the property was assessed at Rs.1.70 crores and ASL Pvt. Ltd. had to pay the deficit Stamp Duty of Rs.5,86,000 as well as deficit Registration Fee of Rs.92,125. Aggrieved, ASL Pvt. Ltd. filed the writ petition challenging the notice. Ld. Single Judge referred the question to a larger bench.
Proceedings before the Full Bench of the Calcutta High Court:
7. In order to appreciate the controversy, it would be appropriate to first reproduce the relevant provision in exercise of which power the higher stamp duty was sought. Section 47A was inserted by the Indian Stamp (West Bengal Amendment) Act, 1990 (hereinafter referred to as the ‘Act’) reads as under:
“47A. – Instruments of conveyance etc. undervalued how to be dealt with – (1) Where the registering officer appointed under the Registration Act, 1908 (16 of 1908), has while registering any instrument of conveyance, exchange, gift, partition or settlement, reason to believe that the market value of the property which is the subject matter of such instrument has not been truly set forth in the instrument, he may, notwithstanding the contrary provisions in Section 35 insofar as it relates to registration, register such instrument provisionally, subject to determination of the market value under sub-section (2), and, after registering such instrument, refer the matter to such authority as may be prescribed for determination of the market value of such property and the proper duty payable thereon.”
Section 47A was further amended by the Indian Stamp (West Bengal Amendment) Act, 1998 with effect from 15.03.2021, and reads as under:
“47A. Instruments of conveyance, etc. undervalued, how to be dealt with (1) Where the registering officer appointed under the Registration Act, 1908 (16 of 1908) has, while registering any instrument of
a) agreement or memorandum of an agreement relating to a sale or lease-cum sale of immovable property,
b) conveyance, (c) to (h) ….
reason to believe that the market value of the property which is the subject matter of any such instrument has not been truly set forth in the instrument ·presented for registration, he may, after receiving such instrument, ascertain the market value of the property which is the subject matter of such instrument in the manner prescribed and compute the proper stamp duty chargeable · on the market value so · ascertained and thereafter he shall, notwithstanding anything to the contrary contained in the Registration Act, 1908, in so far as it relates to registration, keep registration of such instrument in abeyance till property which is the subject matter of conveyance, exchange, gift, release of benami right or settlement, and the duty as aforesaid. The difference, if any, in the amount of duty, shall be payable by the person liable to pay the duty.”
8. The successful purchasers (respondents herein) sought to rely upon the two judicial views of this Court in support of their contention that the transacted value alone should be taken into consideration for affixation of stamp duty.
1. Govt. of Andhra Pradesh & Ors .v. P. Laxmi Devi1, which arose under Section 47A as applicable to Andhra Pradesh, wherein the Court opined that there was large scale undervaluation of the real value of property in sale deed so as to defraud the government proper revenue. There was no provision in the original Stamp Act to empower the Revenue Authorities to make an inquiry about the value of the conveyed property. Hence, amendments were made to the Indian Stamp Act from time to time in several states to determine the correct stamp duty.
2. V.N. Devadoss v. Chief Revenue Control Office-cum-Inspector & Ors.2, which arose under Section 47A as applicable to Tamil Nadu, wherein it was held that it is not a routine procedure to be followed in respect of each and every document of conveyance presented for registration without any evidence to show lack of bona fide of the parties. Therefore, the basis for the exercise of power under section 47A of the Act is the wilful undervaluation of the subject of transfer with fraudulent intention to evade payment of proper stamp duty. The Registering Officer cannot have any reason to believe that the market value of the property was not truly set forth in an instrument of transfer executed pursuant to the order of a court, when the property was sold at a public auction after the publication of the advertisement in newspapers.
9. The respondents then relied upon the judgment in Birendra Nath Manna & Anr. v. State of West Bengal & Ors.3, which upheld the constitutional validity of Section 47A as applicable to West Bengal. The Respondents also submitted that the Statement of Objects and Reasons for enactment of the Indian Stamp Act (West Bengal Amendment) 1990 contained the explanation for insertion of Section 47A. It was stated that West Bengal is no exception to the general phenomenon of under valuation of properties and the revenue from stamp duty has increased sharply for states where the basis of charging duty was changed from the declared price or value of properties to the market value.
10. In the aforesaid context it was pleaded that the best possible prices were obtainable through a transparent method and that is what was the price of the transactions. In the partition matter, there were 98 tenants on the land and the total monthly rent was Rs.8,000 for the entire land and 80 vendors were occupying the land for hawking business during daytime and, thus, the consideration of Rs.78,69,000 was the best possible price. Similarly, in the company matter, the endeavour was made more than once but even the reserve price was not obtainable and, thus, the best possible price was obtained at an auction. The market value of the property would not be a hypothetical figure, which the bidder must match rather it is the value, which is obtainable through the process of the highest bidder willing to pay under the prevailing circumstances.
11. On the other hand, the State (appellant before us) submitted that the provisions brought about by the amendment mentioned aforesaid was different from the one in Tamil Nadu and, thus, the pronouncement in N. Devadoss4 case will not apply. In addition, it was urged that the Ld. Single Judge vide order dated 04.12.2006 lacked the jurisdiction to give pre-emptive direction that the consideration being the actual consideration for the property would be treated as value of the property for registration and stamp duty as Section 47 of the Act provides that the order passed by the Chief Controlling Revenue Authority shall be final and shall not be called into question in any civil court or before any authority.
12. The three Judges Bench held on the conspectus of the aforesaid arguments that Section 47A of the Act as applicable to West Bengal read with Rule 3 of the West Bengal Stamp (Prevention of Undervaluation of Instruments) Rules, 2001 (hereinafter referred to as the ‘Rules’) is not applicable to an instrument executed by a Receiver pursuant to an order of sale passed by a civil court, after publication in newspapers. The sale conducted by the court through its officers qualifies to be an open market sale subject to the following conditions:
a) there must be wide publicity of the proposed sale and particularly there shall be publication of advertisement in at least one newspaper having wide circulation in the concerned city/town/ district.
b) The purchaser of the property must not be connected with or related to the authority/ officer conducting the sale.
13. In the discussion over the objective and purport of Section 47A of the Act as applicable to the State of West Bengal, Tamil Nadu and Andhra Pradesh, it was observed that they were in pari materia insofar as they confer power on the Registering Officer not to register an instrument when the Registering Officer has reason to believe that the market value of the property has not been truly set forth in the instrument. The difference in language of the Section was not significant. When a property is sold in a private sale, the registering officer has the power to determine the actual value of the property. As legal fictions are limited for the purpose for which they are created and cannot be widened by Rules made under the Act and no such fiction is required to be provided for determining the price of the property when it is sold in the open market. Thus, the definition of “Market Value” as under Section 2(16B) of the Act would not apply to the property if actually sold in the open market.
“2(16B) – ‘Market Value’ means, in relation to any property which is the subject matter of an instrument, the price which such property would have fetched or would fetch if sold in open market on the date of execution of such instrument as determined in such manner and by such authority as may be prescribed by rules made under this Act of the consideration stated in the instrument, whichever is higher.”
14. Insofar as the expression “whichever is higher” in the sub-section aforesaid, it would mean the higher of the two prices, i.e., the price which such property would have fetched in the open market on the date of execution of such instrument (i.e., in the immediate past) or the price which such property would fetch if sold in the open market on the date of execution of such instrument (i.e., in the immediate future). If the legislature had intended that Section 2(16B) of the Act was to apply to open market sales also it would have made a separate or specific provision regarding the determination of the price of the property being sold in the open market. The expression “if sold in open market” presupposes that the property was not sold in the open market. The language of Rule 3 also buttresses the same view where none of the four methods of determining the value of the property in question refers to value fetched at an open market sale. A court sale was opined to be an open sale. Advertisements published in the daily newspapers having wide circulation in the city or town where the property is situated is an open market sale. The court may be well advised to get the valuation of the property made by a registered valuer for the purposes of fixing the Reserve Price before issuing the advertisement in newspapers. However, this cannot be a pre-requisite as it is not always possible to get bids above the reserve price or even matching the reserve price, as was seen in the company matter. The whole basis of holding that a Court sale is an open market sale is the sanctity with which the proceedings of the sale are conducted by the court and its officers. In case the registering authority has any material to doubt such sanctity, it is open for it to move the court with a proper application pointing out such materials for reviewing the order regarding the determination of price.
15. We may note that in order to buttress the entitlement for fixation of stamp duty based on a market value as perceived in the aforesaid subsection, the State relied upon the judicial pronouncement of this Court in M/s. Kayjay Industries Pvt. Ltd. V. M/s. Asnew Drums (P) Ltd. & Ors.5 It was submitted that a Court sale is a forced sale and notwithstanding the competitive element of a public auction, the best price is not often forthcoming, thereby creating an apprehension that it will adversely affect the State Exchequer in respect of other properties in the area. However, even if the property at a Court sale does not fetch the highest or best available price and there are other pieces of evidence of market value of similar properties available in the area, the Registering Officer can always consider the other sale instances or any other material reflecting higher value of the property under sections 47A(1)(2) read with Section 2(16B) of the Act and Rule 3 of the Undervaluation Rules of 2001.
The Occasion for Reference:
16. On consideration of the matter on 6.2.2020, it was opined that the impugned judgment had traversed certain areas over which the Court had reservations:
a. the interpretation of Section 2(16B) of the Act as set out in para 24 of the impugned judgment (referring to the higher price in the immediate past or immediate future), is contrary to the wordings of the statute;
b. para 27.4 of the impugned judgment (giving Registering Officer the liberty to move the court with proper application in case of doubts on sanctity of the open market sale) sought to give the Registering Authority a new channel to open up final transaction having far reaching repercussions; and
c. the conclusion contained in paras 29.1 and 29.2 (holding that a court sale cannot be the subject matter of exercise of powers by the Registering Authority, along with conditions to be satisfied for a court sale to be an open market sale) were beyond what was observed.
17. In the conspectus of the aforesaid it was opined that the Bench would have proceeded to enunciate the legal position, but the respondent mentioned a judgment of two Judges Bench of this Court in Additional Distt. Sub-Registrar, Siliguri v. Pawan Kumar Verma6 which held that a Registering Authority cannot be compelled to follow the value fixed by the court for purposes of suit valuation, which sought to traverse a different path. It was held that a legal principle should be settled in the context of Section 47A in West Bengal, after taking into consideration that similar amendments were made in the states of Tamil Nadu and Andhra Pradesh though they were not identical. Thus, the matter was referred to a three-Judges Bench of this Court.
Submissions of the Appellant:
18. The appellant sought to assail the restriction on the power of the Registering Officer in case of court auction sales by contending:
