Civil Suit for Property Abrogation Under Income Tax Act Scheme Maintainable, Not Barred by Ouster Clauses: Bombay High Court

Mumbai: In a significant ruling concerning the jurisdiction of civil courts over disputes arising from the erstwhile Chapter XX-C of the Income Tax Act, 1961, the Bombay High Court (Coram: Justices B. P. Colabawalla & Firdosh P. Pooniwalla) has held that a civil suit seeking a declaration that a compulsory purchase order stands abrogated due to the government's failure to pay consideration within the statutory timeline is not barred by Sections 269-UN or 293 of the Act.

The Division Bench overturned a Single Judge's order that had dismissed a suit filed by Sasmita Investments Ltd. (the Plaintiff/Appellant) on the preliminary ground that it was barred by these provisions. The judgment, pronounced on April 25, 2025, after being reserved on March 13, 2025, clarifies the scope of the ouster clauses in the IT Act when the relief sought is the recognition of a statutory consequence prescribed within the Act itself.

Background of the Case

The dispute originated from an agreement dated July 13, 1991, by which the Mulanis and Omprakash Navani (the original transferors) agreed to sell a property on Walkeshwar Road, Mumbai, to M/s. Seawell Interdrill Services Pvt. Ltd. As the transaction fell under Chapter XX-C of the IT Act, a statement (Form 37-I) was submitted to the Appropriate Authority.

The Appropriate Authority subsequently issued three compulsory purchase orders (in 1991, 1993, and 2002) under Section 269-UD(1), citing understated consideration. The first two orders were challenged and set aside by the High Court, with remands to the authority. The third order was passed on September 12, 2002.

According to the Plaintiff, despite the property vesting in the Central Government upon the third compulsory purchase order (as per Section 269-UE), the government failed to tender or deposit the apparent consideration (Rs. 7,74,99,000/-) within the period stipulated by Section 269-UG (one month from the end of the vesting month, which would be by October 31, 2002).

Section 269-UH(1) of the Act explicitly states that if the Central Government fails to tender or deposit the consideration within the specified period, the compulsory purchase order "shall stand abrogated and the immovable property shall stand revested in the transferor after the expiry of the aforesaid period." Section 269-UH(2) mandates the Appropriate Authority to issue a declaration to this effect and deliver possession back to the transferor.

The original purchaser ( Seawell , and later its merged entity Trikaya) and the transferors repeatedly sought such a declaration from the Appropriate Authority, but none was issued. In 2006, the original agreement was terminated, and Sasmita Investments Ltd. purchased the property from the Mulanis and Navani via a Deed of Conveyance. Sasmita Investments then filed a suit seeking declarations that the third compulsory purchase order stood abrogated by operation of law from October 31, 2002, that the property re-vested in the original owners, and that Sasmita Investments is now the absolute owner.

Arguments Before the High Court

Mr. Harish Salve, Senior Counsel for the Appellant ( Sasmita Investments ), argued that the suit does not challenge the validity of the compulsory purchase order itself but merely seeks a declaration of a statutory consequence (abrogation and re-vesting) that occurs automatically under Section 269-UH due to the government's non-compliance with Section 269-UG. He contended that seeking a declaration of abrogation is distinct from "calling in question" the order (barred by Section 269-UN) or seeking to "set aside or modify" it (barred by Section 293). The suit, he submitted, is in alignment with the IT Act's scheme and the civil court's jurisdiction is not ousted.

Conversely, the learned Attorney General of India, appearing for the Appropriate Authority and Union of India (Respondents), argued that the suit was an attempt to indirectly challenge the compulsory purchase order. He contended that determining whether abrogation occurred under Section 269-UH would necessitate an inquiry into matters under the IT Act, which is barred by the wide language of Section 293. He submitted that Section 269-UN and Section 293 read harmoniously create a complete bar to civil court jurisdiction in such matters. The Attorney General also raised the point that the mandatory declaration under Section 269-UH(2) was not issued by the authority.

Court's Reasoning and Findings

The Division Bench meticulously examined the scheme of Chapter XX-C, focusing on Sections 269-UD, 269-UE, 269-UF, 269-UG, 269-UH, 269-UN, and the general ouster clause in Section 293.

The Court emphasized that Section 269-UH provides for abrogation and re-vesting by operation of law if the consideration is not paid within the stipulated time.

Interpreting Section 269-UN, the Bench held that the phrase "called in question" refers to challenging the validity or legality of the order itself. Seeking a declaration that an order stands "abrogated" implies that the order was initially valid but ceased to exist due to a subsequent event (non-payment) as provided by law. This is not equivalent to challenging or disputing the original order.

Similarly, the Court found that seeking a declaration of abrogation under Section 269-UH does not "set aside or modify" the compulsory purchase order in the sense contemplated by Section 293. It is merely asking the court to recognize a legal consequence that the IT Act itself prescribes.

Citing the Constitution Bench judgment in Dhulabhai ETC V/S State of Madhya Pradesh and Another , the Court reiterated that the jurisdiction of civil courts is wide and not easily ousted unless there is an express bar or clear intendment. The Court noted that while the IT Act provides for abrogation under Section 269-UH, it does not provide a mechanism within the Act for a party to force the authorities to recognize this abrogation if they refuse to issue the mandatory declaration under Section 269-UH(2). Therefore, an inquiry into whether abrogation occurred due to non-compliance with Section 269-UG is not a "proceeding under this Act" barred by Section 293.

The Bench distinguished the Supreme Court's decision in Commissioner of Income Tax Bhubaneswar and Another V/S Parmeshwari Devi Sultania and Others , noting that the suit in that case directly sought partition of assets seized under the IT Act, the decree for which would necessarily set aside or modify the seizure proceedings. In contrast, the present suit seeks recognition of a state of affairs (abrogation and re-vesting) that the IT Act itself dictates should happen under certain conditions.

The Court concluded that the learned Single Judge erred in equating abrogation with annulling or setting aside the order and in finding that granting the declaration would implicitly declare the Chapter XX-C proceedings illegal.

Conclusion

The Bombay High Court set aside the impugned order of the Single Judge, answering the preliminary issue regarding the bar under Sections 269-UN and 293 in the negative, i.e., holding that the suit is not barred. The Court directed that the suit, which dates back to 2006, be expedited and restored an earlier interim order passed by the Single Judge. The other preliminary issues (limitation and locus standi) were not decided and were left open to be determined later.

This judgment underscores that the civil court's jurisdiction remains available to parties seeking the enforcement or recognition of rights and consequences that flow from statutory provisions, particularly when the statute itself does not provide an adequate alternative forum for such specific relief, even within a framework that contains ouster clauses.

Bench: Justices B. P. Colabawalla & Firdosh P. Pooniwalla Case: Appeal No. 298 of 2014 in Suit No. 2094 of 2006 Pronounced On: April 25, 2025