Supreme Court Upholds High Court Decision on Stamp Duty Valuation: Chief Revenue Controlling Officer vs. P. Babu (2025) INSC 1

Date of the Judgment: 3rd January, 2025
Citation: (2025) INSC 1
Judges: J.B. Pardiwala, J. and R. Mahadevan, J.

Can a registering officer refer a property for valuation without providing reasons for believing that it is undervalued? The Supreme Court of India recently addressed this question in a case concerning the valuation of sale deeds and the application of the Indian Stamp Act, 1899. The core issue revolved around whether the registering officer must provide reasons for believing that a property was undervalued before referring it for valuation. The Supreme Court upheld the High Court’s decision that such reasons are indeed necessary, emphasizing the importance of following proper procedure in determining property values. The judgment was delivered by a bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan.

Case Background

The case involves Mr. P. Babu, the respondent, who purchased properties through two sale deeds. The sale deeds were registered on 5th September 2002 and 2nd September 2000, with stated market values of Rs. 1,20,000 and Rs. 1,30,000 respectively. The Joint Sub-Registrar, Tindivanam, declined to release the documents, suspecting undervaluation of the properties. Consequently, the matter was referred to the Special Deputy Collector (Stamps) for determining the correct market value under Section 47-A(10) of the Indian Stamp Act, 1899.

The Special Deputy Collector (Stamps) fixed the market value of the properties at Rs. 51,16,600 and Rs. 10,36,937 respectively, which was substantially higher than the values declared in the sale deeds. Mr. Babu, dissatisfied with this valuation, appealed to the Inspector General of Registration, who dismissed the appeal. Subsequently, Mr. Babu filed Civil Miscellaneous Appeals before the High Court of Judicature at Madras, challenging the orders of the authorities below.

Timeline

Course of Proceedings

The Joint Sub-Registrar, upon suspecting undervaluation, referred the matter to the Special Deputy Collector (Stamps). The Special Deputy Collector fixed a significantly higher market value for the properties. The Inspector General of Registration dismissed the appeal filed by the respondent. The High Court of Judicature at Madras, however, allowed the civil miscellaneous appeals filed by the respondent, quashing the orders of the authorities below. The High Court held that the initial reference for valuation was flawed because the registering officer did not provide reasons for believing that the property was undervalued. The High Court also noted that the Special Deputy Collector failed to follow the proper procedure by not issuing a provisional order before the final order.

Legal Framework

The case hinges on the interpretation of Section 47-A of the Indian Stamp Act, 1899, which deals with undervalued instruments of conveyance.

Section 17 of the Stamp Act states:

“17. Instruments executed in India. – All instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution.”

Section 47-A of the Stamp Act reads:

“47-A. Instruments of conveyance etc., undervalued how to be dealt with.— (1) If the Registering Officer appointed under the Indian Registration Act, 1908 (Central Act XVI of 1908) while registering any instrument of conveyance, exchange, gift, release of benami right or settlement, has reason to believe that the market value of the property which is the subject matter of conveyance, exchange, gift, release of benami right or settlement, has not been truly set forth in the instrument, he may, after registering such instrument, refer the same to the Collector for determination of the market value of such property and the proper duty payable thereon.
(2) On receipt of a reference under sub-section (1), the Collector shall, after giving the parties a reasonable opportunity of being heard and after holding an enquiry in such manner as may be prescribed by rules made under this Act, determine the market value of the 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.
(3) The Collector may, suo motu or otherwise, within five years from the date of registration of any instrument of conveyance, exchange, gift, release of benami right or settlement not already referred to him under sub-section (1), call for and examine the instrument for the purpose of satisfying himself as to the correctness of the market value of the property which is the subject matter of conveyance, exchange, gift, release of benami right or settlement and the duty payable thereon and if after such examination, he has reason to believe that the market value of the property has not been truly set forth in the instrument, he may determine the market value of such property and the duty as aforesaid in accordance with the procedure provided for in sub-Section (2). The difference, if any in the amount of duty, shall be payable by the person liable to pay the duty.”

The Tamil Nadu Stamp (Prevention of Undervaluation of Instruments) Rules, 1968, particularly Rule 3 and Forms I and II, are also relevant. Rule 3(4) allows the registering officer to consult the “Guidelines Register” but clarifies that these guidelines are only for preliminary verification. Form I is the notice issued to the parties when a reference is made to the Collector, and Form II is the notice issued after the provisional determination of market value.

Rule 4(4) of the Tamil Nadu Stamp (Prevention of Undervaluation of Instruments) Rules, 1968 states:

“4. Procedure On Receipt Of Reference Under Section 47-A :-
xxxxx
(4) After considering the representations, if any, received from the person to whom notice under sub-rule (1) has been issued, and after examining the records and evidence before him, the Collector shall pass an order in writing provisionally determining the market value of the properties and the duty payable. The basis on which the provisional market value was arrived at shall be clearly indicated in the order.”

Arguments

The appellants, the revenue officers, argued that it is not mandatory to assign reasons in the Form I notice issued to the parties. They contended that the registering officer can refer the document for valuation based on their belief that the property is undervalued.

The respondent, Mr. Babu, argued that the Form I notice must contain reasons for believing that the property is undervalued. He contended that the registering officer cannot make a reference to the Collector without a proper basis and that the Special Deputy Collector (Stamps) did not follow the prescribed procedure.

The innovativeness in the argument of the respondent was that the reference made by the Registering Officer was without any basis and the Special Deputy Collector (Stamps) did not follow the prescribed procedure.

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the registering officer is required to provide reasons for believing that a property is undervalued before referring it to the Collector for valuation under Section 47-A of the Indian Stamp Act, 1899?

Treatment of the Issue by the Court

Authorities

Judgment

The Supreme Court upheld the High Court’s decision, emphasizing that the registering officer must have a valid reason to believe that a property is undervalued before referring it for valuation. The Court agreed with the High Court’s reliance on the Full Bench decision in G. Karmegnam v. The Joint Sub-Registrar, Madurai [2007 (5) CTC 737]* which held that the registering officer must provide reasons for concluding that a property is undervalued. The Court also noted that the Special Deputy Collector (Stamps) failed to follow the procedure by not issuing a provisional order as required by Rule 4(4) of the Tamil Nadu Stamp (Prevention of Undervaluation of Instruments) Rules, 1968.

What weighed in the mind of the Court?

The Court’s reasoning was primarily driven by the need to ensure that the process of determining property valuation is fair, transparent, and in accordance with the law. The Court emphasized the importance of objective satisfaction and the need for reasoned decisions by the authorities. The absence of reasons in the Form I notices and the failure to follow the prescribed procedure by the Collector (Stamps) were key factors that weighed in the mind of the Court.

Logical Reasoning

The Court rejected the argument that the registering officer can refer the document for valuation based on mere suspicion without any basis. The Court emphasized that the term “reason to believe” requires a rational connection to the formation of the belief and cannot be a mere pretence. The Court also rejected the argument that it is not mandatory to assign reasons in the Form I notice. The Court held that the Special Deputy Collector (Stamps) failed to follow the prescribed procedure by not issuing a provisional order as required by Rule 4(4) of the Tamil Nadu Stamp (Prevention of Undervaluation of Instruments) Rules, 1968.

The Supreme Court quoted the High Court’s observation:
“…the proceedings referring the documents for determination of the market value, without recording any reason to say that the document is undervalued, thus without performing the statutory obligation, cast upon the third Respondent Registering Officer, to record such reasons to arrive at a decision that the documents are undervalued and the same are required to be referred to the authority concerned to determine the actual market value of the property is contrary to the procedure laid down under law and is ex facie, illegal.”

The Court also quoted:
“The expression ‘reason to believe’ is not synonymous with subjective satisfaction of the officer. The belief must be held in good faith, it cannot be merely a pretence. It is open to the Court to examine the question whether the reasons for the belief must have a rational connection or a relevant bearing to the formation of the belief and are not irrelevant or extraneous to the purpose of the section.”

The Court further observed:
“It is not permissible for the Registering Officer to undertake a roving enquiry for the purpose of ascertaining the correct market value of the property. If the Registering Officer is bona fide of the view that the sale consideration shown in the sale deed is not correct and the sale is undervalued, then it is obligatory on the part of the Registering Authority as well as the Special Deputy Collector (Stamps) to assign some reason for arriving at such a conclusion.”

The Court held that the Collector (Stamps) directly issued the final order without complying with sub-rules (2), (3) and (4) respectively of Rule 4 and also without following Rule 6 of the Rules 1968.

Key Takeaways

• ✓ Registering officers must provide reasons for believing that a property is undervalued before referring it for valuation.
• ✓ Form I notices must contain the reasons for the perceived undervaluation.
• ✓ The Special Deputy Collector (Stamps) must follow the prescribed procedure, including issuing a provisional order before the final order.
• ✓ Authorities must act objectively and not arbitrarily while determining property valuations.
• ✓ Failure to follow the prescribed procedure can invalidate the valuation process.

Directions

No specific directions were given by the Supreme Court other than dismissing the appeals.

Development of Law

The ratio decidendi of the case is that the registering officer must have a valid reason to believe that a property is undervalued before referring it for valuation and must record those reasons. This case reinforces the principle that authorities must act objectively and follow the prescribed procedure, ensuring transparency and fairness in the valuation process. It also reinforces the principle laid down in the case of G. Karmegnam v. The Joint Sub-Registrar, Madurai [2007 (5) CTC 737]*

Conclusion

The Supreme Court dismissed the appeals, upholding the High Court’s decision. The judgment emphasizes the need for reasoned notices and adherence to procedural rules in determining property valuations under the Indian Stamp Act, 1899. It ensures that the process is not arbitrary and that the rights of the parties are protected.

Category

Parent Category: Indian Stamp Act, 1899
Child Category: Section 47-A, Indian Stamp Act, 1899
Child Category: Stamp Duty Valuation
Child Category: Property Valuation

FAQ

Q: What does this judgment mean for property buyers?
A: This judgment ensures that if a registering officer suspects your property is undervalued, they must provide a valid reason for that suspicion. This protects you from arbitrary valuations and ensures transparency in the process.

Q: Can a registering officer refer my property for valuation without giving me a reason?
A: No, the registering officer must provide reasons for believing that your property is undervalued before referring it for valuation. This is a key takeaway from this Supreme Court judgment.

Q: What is a Form I notice?
A: A Form I notice is a notice issued by the registering officer when they refer a property for valuation due to suspected undervaluation. This notice must now include the reasons for the suspicion.

Q: What should I do if I receive a Form I notice?
A: If you receive a Form I notice, carefully review the reasons provided. You have the right to submit a representation and evidence to show that your property was not undervalued.

Q: What is the role of the Special Deputy Collector (Stamps)?
A: The Special Deputy Collector (Stamps) is responsible for determining the correct market value of a property when a reference is made by the registering officer. They must follow the prescribed procedure, including issuing a provisional order.