Property owners can challenge compulsory purchase orders despite Income Tax Act sections 269-UN and 293 restrictions

Sasmita Investments Ltd. Versus Appropriate Authority & Ors.

Sasmita Investments Ltd. Versus Appropriate Authority & Ors. - 2025:BHC - OS:7011 - DB 1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

(i) Whether the jurisdiction of the Civil Court to try, entertain, and dispose of the suit is barred under Section 269-UN and/or Section 293 of the Income Tax Act, 1961;

(ii) Whether the suit is barred by the law of limitation;

(iii) Whether the plaintiff has locus standi to maintain the suit or is estopped from instituting the suit.

The learned Single Judge answered the first issue in the affirmative, holding that the suit was barred under the provisions of Section 269-UN and/or Section 293, and consequently dismissed the suit without adjudicating the other two issues. The appellate Court, however, confined its consideration primarily to the first issue concerning the jurisdictional bar under the IT Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of Civil Court barred under Section 269-UN and/or Section 293 of the IT Act, 1961

Relevant Legal Framework and Precedents:

Chapter XX-C of the Income Tax Act, 1961, comprising Sections 269-U to 269-UO, governs compulsory purchase of immovable property by the Central Government where the consideration is allegedly understated in certain transactions. The relevant provisions include:

• Section 269-UC: Requires an agreement for transfer of immovable property of specified value and area to be reduced to a statement and submitted to the appropriate authority at least four months before transfer.
• Section 269-UD: Enables the appropriate authority to make an order for compulsory purchase of the property at the amount of apparent consideration if it opines that the consideration is understated.
• Section 269-UE: Provides that on passing of the order under Section 269-UD, the property vests in the Central Government.
• Section 269-UF: Mandates payment of consideration equal to the apparent consideration by the Central Government.
• Section 269-UG: Specifies the time frame for payment or deposit of the consideration-within one month from the end of the month in which the property vests in the Central Government.
• Section 269-UH: Provides that if the Central Government fails to tender or deposit the consideration within the stipulated time, the compulsory purchase order stands abrogated by operation of law, and the property re-vests in the transferor. It also mandates the appropriate authority to make a declaration in writing to that effect and deliver possession back to the transferor.
• Section 269-UN: Declares that any order made under Section 269-UD (1) or Section 269-UF (2) shall be final and conclusive and shall not be called in question in any proceeding under the IT Act or any other law.
• Section 293: Bars suits in civil courts to set aside or modify any proceeding taken or order made under the IT Act and protects Government officers acting in good faith under the Act.

The Constitution Bench decision in Dhulabhai ETC v. State of Madhya Pradesh was cited to emphasize that exclusion of civil court jurisdiction must be explicit or clearly implied, and where the statute provides adequate remedies, civil courts are barred. However, if statutory provisions are not complied with or principles of natural justice are violated, civil courts may retain jurisdiction.

Court's Interpretation and Reasoning:

The Court analyzed the scheme of Chapter XX-C and the interplay between Sections 269-UN and 293. It held that the suit filed by the Plaintiff did not call into question the validity or legality of the 3rd Compulsory Purchase Order dated 12th September 2002 under Section 269-UD. Instead, the suit sought a declaration that by operation of law under Section 269-UH, the order stood abrogated due to non-payment of consideration within the prescribed time under Section 269-UG, and that the property re-vested in the transferors. The Plaintiff's case proceeded on the premise that the order was valid but became abrogated by operation of law.

The Court distinguished between "calling in question" an order (which would challenge its validity) and seeking a declaration of abrogation (which recognizes the order's validity but asserts its termination by law). The Court held that Section 269-UN bars challenges to the validity of the order but does not bar a suit seeking a declaration of abrogation under Section 269-UH.

Similarly, the Court interpreted Section 293 as barring suits that seek to set aside or modify proceedings or orders under the IT Act. However, the declaration sought by the Plaintiff did not seek to set aside or modify the 3rd Compulsory Purchase Order but sought to enforce the statutory consequence of abrogation due to non-payment of consideration.

The Court rejected the contention that inquiry into abrogation is a proceeding under the IT Act barred by Section 293. It observed that no machinery exists under the IT Act to enforce or recognize abrogation by operation of law when authorities refuse to acknowledge it, and thus civil courts have jurisdiction to decide such issues.

The Court also noted that the Plaintiff's suit was not a challenge to the order itself but a suit for declaration of rights consequent to statutory abrogation and subsequent purchase from the transferors.

Key Evidence and Findings:

The factual background showed that the Central Government passed three compulsory purchase orders, the third dated 12th September 2002. The Plaintiff alleged that the consideration was not tendered or deposited within the stipulated time, resulting in abrogation of the order and re-vesting of the property in the transferors by operation of law. The Plaintiff purchased the property from the transferors thereafter.

The Government contended that the suit was an indirect challenge to the compulsory purchase order and barred under Sections 269-UN and 293, and that the Plaintiff should have filed a writ petition instead of a civil suit.

Application of Law to Facts:

The Court applied the statutory framework and distinguished the present suit from a challenge to the order itself. It held that the suit sought a declaration of abrogation under Section 269-UH, which is a statutory consequence of non-payment of consideration within the prescribed time, and therefore did not "call in question" the compulsory purchase order within the meaning of Section 269-UN.

The Court further held that the suit did not seek to set aside or modify any order or proceeding under the IT Act within the meaning of Section 293, but sought a declaration consistent with the statutory scheme.

The Court rejected the Government's argument that the suit was barred because the appropriate authority had not issued the declaration under Section 269-UH(2), holding that the absence of such declaration did not preclude the Plaintiff from seeking the declaration from the civil court.

Treatment of Competing Arguments:

The Plaintiff argued that the suit was maintainable as it did not challenge the validity of the compulsory purchase order but sought a declaration of abrogation by operation of law under Section 269-UH. The Plaintiff submitted that the learned Single Judge erred in holding the suit barred under Sections 269-UN and 293.

The Government contended that the suit was an indirect challenge to the compulsory purchase order and barred by the ouster clauses in the IT Act. It further argued that the Plaintiff should have filed a writ petition, and that the appropriate authority had not complied with the procedural requirements under Section 269-UH(2).

The Court rejected the Government's submissions, emphasizing the distinction between challenging an order and seeking a declaration of abrogation under the statutory scheme, and held that the civil court's jurisdiction was not ousted.

Conclusions:

The Court set aside the impugned order dismissing the suit and held that the suit was not barred by Sections 269-UN or 293 of the IT Act. It answered Issue No. 1 in the negative, i.e., in favor of the Plaintiff. The other two preliminary issues were left undecided as they were not addressed by the learned Single Judge.

3. SIGNIFICANT HOLDINGS

The Court crystallized the following core principles and holdings:

• "The declaration sought in the above suit that the 3rd Compulsory Purchase Order (dated 12th September 2002) stands abrogated on and from 31st October 2002, and from that date the suit property re-vests in the Mulanis and Defendant No. 19, does not in any way 'call in question' the 3rd Compulsory Purchase Order dated 12th September 2002."
• "Seeking a declaration that the order under Section 269-UD (1) stands 'abrogated' means that the said order is officially brought to an end, either by law or by agreement. This by no stretch of the imagination could mean that the 3rd Compulsory Purchase Order is being 'called in question' as referred to in Section 269-UN."
• "The declarations sought by the Plaintiff do not have any effect of setting aside or modifying any proceeding taken, or order made, under the IT Act, 1961. All that the Plaintiff seeks is a declaration that by virtue of Section 269-UH the 3rd Compulsory Purchase Order stood abrogated for non-compliance of the provisions of Section 269-UG."
• "The jurisdiction of Civil Courts is all embracing except to the extent it is excluded by express provision of law or clear intendment arising therefrom. Neither Section 269-UN nor Section 293 expressly or by necessary implication ousts the jurisdiction of the Civil Court in the present case."
• "The abrogation referred to in Section 269-UH takes place by operation of law provided the consideration is not paid within the time-frame as stipulated in Section 269-UG. There is no machinery under the IT Act to enforce or recognize such abrogation if the authorities refuse to do so. Therefore, civil courts have jurisdiction to entertain such suits."
• "The learned Single Judge erred in holding that the suit sought to annul, cancel or set aside the compulsory purchase order. The abrogation takes place by operation of law, and the suit does not call into question the order itself."
• "The ratio of the Supreme Court decision in Parmeshwari Devi case relied upon by the learned Single Judge is distinguishable on facts and does not apply to the present case."

The Court accordingly set aside the impugned order and restored the suit for trial, with no order as to costs.