TRANSFER OF

PROPERTY ACT

Mayra Kumar
1182210048 | DIV- A
 Case Analysis: Lal Chand v. Union of India & Anr (12 August 2009)

Court: Supreme Court of India

Case Number: 2009 INSC 1044

Judge: R.V Raveendran B. Sudershan Reddy, JJ

Date: August 12, 2009

Parties:

• Appellants: Lal Chand and Others (Landowners)

• Respondents: Union of India & Delhi Development Authority (DDA)

Introduction

The case of Lal Chand v. Union of India (2009) 9 SCC 1044 addresses an important issue of
land acquisition law: the calculation of market value for compensation purposes. The Supreme
Court looked at the Delhi High Court's reliance on the Delhi Development Authority's (DDA)
brochure prices and the exclusion of certain sale documents. This issue is significant because
it directly relates to how market value is established for compensation under the Land
Acquisition Act of 1894 (LAA), with a particular emphasis on the significance of sale deeds
and stamp duty in representing the true market value of land. Since both stamp duty (paid on
sale deeds) and the sale deeds themselves are frequently taken into account for determining
market value in land acquisition proceedings, the Transfer of Property Act, 1882 (TPA) and the
Stamp Act intersect with the Land Acquisition Act.

This case also emphasizes the difficulty of using stamp duty values as a conclusive indicator
of market worth and the role of judicial discretion in assessing the evidence.

Facts of the Case

In Lal Chand v. Union of India, the appellants were landowners whose property in the Delhi
suburb of Village Rithala was purchased by the Union of India in accordance with the 1894
Land Acquisition Act. The Delhi High Court decided the compensation based on the rates listed
in a DDA brochure dated 1981, when the acquisition was made through four separate
notifications. The appellants contested the compensation granted by the High Court, claiming
that the DDA brochure rates were unsuitable, because these rates were modified for
development expenditures, while the site in question was undeveloped.

In order to prove the market worth of the purchased land, the appellants produced multiple sale
deeds in their pursuit of a larger settlement. The Delhi Development Authority (DDA) and the
Union of India disputed the use of these sale deeds, claiming that some of them were
untrustworthy and irrelevant. The Supreme Court was asked to decide if the amount of money
given was fair and reasonable and to explain the proper process for figuring out market value
in these kinds of situations.

Legal Issue

1. Admissibility of discounted Sale Deeds - Can the market worth of purchased land be
ascertained using sale deeds that indicate discounted consideration?

2. Effect of Stamp Duty Evasion - The function of stamp duty in real estate transactions
and how a sale deed's undervaluation may be an effort to avoid paying taxes.

3. Trustworthiness of Sale Deeds for Determining Compensation - How courts should

Petitioner’s Arguments

The appellants contended that the Rohini Residential Scheme's DDA brochure (Exhibit X-1)
should be utilized as a gauge of the current market price for the land because it revealed an
average premium of Rs. 150 per square meter for plots in 1981.

They cited the Government of India's 1989 circular rates, which indicated that residential plots
had a market value of Rs. 400 per square yard, as a measure of the area's land worth. The
appellants contended that these rates should be regarded as a pertinent piece of data for
evaluating the larger market trend, even though they were not intended to determine market
worth.
The appellants also cited a prior award for land purchased in Rithala in 1961, which indicated
a greater market value of Rs. 67,525 per bigha in 1981 after accounting for compound interest
over 20 years.

According to a number of sale deeds (A-2, A-3, A-10, and A-13) from 1981, the transaction
values for each bigha ranged from Rs. 35,000 to Rs. 68,570. These deeds served as evidence
that the area's land market worth was far greater than the amount of compensation.

Respondent’s Argument

The respondents contended that the prices shown in their sale deeds, which ranged from Rs.
9,391 to Rs. 10,793 per bigha, accurately represented the land's market worth in Rithala Village.

They asserted that the sale deeds of the appellants (Ex. A1 to A3 and A10 to A13), which
displayed much higher prices (Rs. 35,000 to Rs. 68,570 per bigha), were untrustworthy and
most likely falsified in order to enhance the market value in order to obtain a greater price.

The defendants contended that the appellants' deeds were distress sales or purposefully
discounted to avoid paying stamp duty and capital gains tax.

They argued that the appellants' sale deeds were made expressly to bolster exaggerated claims
for compensation because they were issued after the public learned about the land acquisition.

Court's Judgment

The Court maintained the idea that certified copies of sale deeds might be used as proof without
having to look at the vendor or the buyer. The Court did stress, nevertheless, that these records
do not always prove the land's market value. The Court pointed out that the transaction's
circumstances, including the land's distance from the city, the state of the market, and other
pertinent elements, must be taken into account. Thus, the Court upheld the need for thorough
examination and the conditional nature of relying on sale deeds in compensation cases.
This decision made it clear that additional considerations, like geography and property usage,
must be taken into account in addition to undervalued sale deeds when determining
compensation.1

Sale Deed Undervaluation - The Court recognized the common practice of undervaluing real
estate transactions in order to evade paying stamp duty under the Stamp Act. According to the
Court, this method may result in circumstances where the sale deed does not accurately reflect
the property's genuine market worth. The Court emphasized, therefore, that not all deeds with
little value should be immediately dismissed as untrustworthy. Instead, each case needs to be
evaluated according to the specific facts and circumstances of the transaction.2

The Court rejected undervaluation for stamp duty evasion, ruling that sale deeds should not be
taken into consideration if there is proof that the undervaluation was done on purpose to avoid
stamp tax or to deceive the authorities. This strategy makes sure that courts don't use inflated
or deceptive pricing to determine compensation.

Market Value Establishment3, The Court mandated that the actual market value of the acquired
land be assessed utilizing a variety of evidentiary sources, such as recent local transactions.
The sale deed may be rejected or changed to reflect the true value if it shows a value that is
significantly lower than the going rate. The Court emphasized that rather than depending on
exaggerated or understated pricing, the remuneration must reflect the genuine market value.

The Court established the rule that the "market value" of the land should be established by a
fair and reasonable estimate of its worth, taking into account the going rate in the market at the
time of purchase4.

Although the Court must make sure that sale documents represent the genuine market worth
and are not undervalued to evade paying taxes or stamp duties, it concluded in this case that
they might be a legitimate source of evidence for assessing compensation.5

1
V. Chandrasekaran v. Union of India (2004)
2
Union of India v. Ram Phool, (2003) 2 SCC 427
3
Ravindra Singh v. Union of India, (1998) 9 SCC 470
4
K. K. Verma v. Union of India, (1979) 4 SCC 357,
5
Bhoop Singh v. Union of India (1994)
The Court specifically denounced the practice of applying arbitrary percentage increases to
undervalued sales contracts in order to "adjust" the price. This strategy has been used in a
number of previous cases. The Court underlined that compensation must be supported by
verifiable facts from the actual transaction rather than presumptions of widespread
undervaluation6.

The Lal Chand ruling by the Supreme Court suggests that a more comprehensive evaluation of
land worth is required, going beyond a simple examination of the price listed in registered sale
deeds. This is because the price may not always accurately represent the land's prospective
value, especially when undeveloped acreage is taken into account7.

Legal Precedent Taken Under Account

Whereby the Court addressed the need to take into account the authenticity of sale deeds when
using them as a foundation for figuring out market value or compensation in land acquisition
cases8.

Wherein the Court decided that undervaluation in sale deeds cannot be utilized to calculate
compensation in land acquisition situations if it is determined to be dishonest9.

Analysis: Undervaluation and Stamp Duty Evasion

Under the Transfer of Property Act of 1882 and the Stamp Act of 1899, the problem of
undervaluation in sale deeds has important ramifications. The goals of these pieces of law are
to guarantee that real estate transactions represent their genuine value and that the right taxes,
including stamp duty, are paid accordingly. 10The Court in Lal Chand examined the possibility
that sale deeds could be purposefully devalued in order to avoid paying stamp duty, which is
determined by the deed's stated consideration. If a property is undervalued, the buyer could
evade taxes by not paying the appropriate stamp duty.

6
Kuchhal, M.C., Property Law Including the Law of Transfer of Property (8th ed. 2018), Universal Law
Publishing.
7
Ayyer, R.V., Property Law in India (2020), LexisNexis.
8
Chandra Sekhar v. Government of Delhi, (1995) 3 SCC 124
9
Bihar State Board of Religious Trusts v. Jha, (1977) 2 SCC 369
10
Shukla, S.N., Law of Transfer of Property (6th ed. 2017), Central Law Agency.
The Supreme Court in this case emphasized that sale transactions from neighbouring areas
cannot be relied upon when contemporaneous transactions in the same locality are available.
Similarly, in Lal Chand, the Court highlighted that sale deeds of comparable land must be
evaluated for their true market value before they can be used to determine compensation.11

According to the Stamp Act, stamp duty, which is determined by the transaction value, must
be paid with every document used to sell real estate. A sale deed is the document used to transfer
property ownership under the Transfer of Property Act of 1882. However, the sale deed may
be regarded as a sham document and its validity as proof of the land's actual market worth may
be called into doubt if the transaction value is purposefully overstated to avoid paying taxes.
When property undervaluation is discovered, the Stamp Act may have severe repercussions. If
the document is suspected of being undervalued, Section 33 of the Stamp Act gives the
authorities the authority to determine the property's genuine value. In addition to a penalty, the
buyer might have to pay extra stamp duty.12

The Supreme Court's focus on determining whether the sale deed was devalued for tax evasion
reasons in this case emphasizes the necessity for courts to make sure that remuneration for
acquired land is not artificially deflated as a result of fraudulent real estate transactions.

Final Contentions and Relevance to Stamp Duty under Transfer of Property

In my opinion, the Supreme Court's ruling in Lal Chand v. Union of India significantly clarifies
the legal framework surrounding land acquisition, particularly with regard to the proper method
for determining market value. The ruling upholds the rule that, particularly when it comes to
undeveloped land, stamp duty and sale deeds by themselves cannot be naively used to estimate
market value. A more equitable and comprehensive method of deciding compensation is
offered by the Court's emphasis on taking development expenses and other aspects into
account. The Court stressed that undervaluation to avoid stamp duty could render the
transaction null and void in accordance with Section 64 of the Transfer of Property Act13.

11
Union of India v. Ram Phool (2003)
12
The Stamp Act, 1899, SecXon 33
13
S.S. Ramaswamy v. State of Tamil Nadu, (1995) 3 SCC 437
The ruling also emphasizes how difficult it is to strike a balance between the evidential value
of sale deeds and legal concepts like just recompense, which are frequently made more difficult
by the realities of stamp duty underreporting. In order to guarantee that landowners get
compensation based on an accurate and equitable appraisal of the value of their property, this
decision sets a significant precedent for future land acquisition cases, wherein the Court
highlighted the escalating worries about property transaction undervaluation and how it affects
government revenue through stamp duty.14

The use of stamp duty in land value for compensation is mentioned in passing in the ruling. In
accordance with the Transfer of Property Act of 1882, stamp duty on real estate transfers must
be paid according to the transaction value. 15Stamp duty numbers may provide information on
the perceived market value at the moment of sale in the context of land purchase. Courts must
exercise caution when using these numbers, though, as the transaction value may occasionally
be understated in order to avoid having to pay more in stamp duty.

Conclusion

The importance of stamp duty in real estate transactions under the Transfer of Property Act is
highlighted by the Supreme Court's ruling in Lal Chand v. Union of India, especially when it
comes to land acquisition disputes. Since stamp tax is computed as a proportion of the
transaction's market value, the Court stressed that the authenticity and accuracy of sale deeds
are crucial since undervaluation in these papers might result in a large underpayment of stamp
duty. The legality of the real estate transaction and the integrity of the tax system are both
jeopardized when properties are devalued in order to avoid paying taxes or to inflate
compensation claims. The ruling emphasizes that adherence to the Indian Stamp Act is crucial
for guaranteeing equitable compensation in land acquisition processes as well as for tax
revenue, and it calls for a careful examination of sale documents to guarantee that the
appropriate stamp duty is imposed based on the genuine market value. By doing this, it
establishes a significant precedent for cases in the future, highlighting the fact that accurate
stamp duty assessments reflect the actual value of the property, stop tax evasion, and maintain
the transparency of real estate transactions.

14
India Finance Co. Ltd. v. Union of India, (1996) 1 SCC 119
15
Sinha, R.K., The Transfer of Property Act (3rd ed. 2015), Eastern Book Company.