Obligatory for registering authority to record reasons before finding undervaluation in sale deeds: Supreme Court

New Delhi: The Supreme Court has said it is obligatory on the part of the registering authority as well as the Special Deputy Collector (Stamps) to assign some reason based upon objective satisfaction for arriving at a conclusion that the consideration shown in a sale deed is not correct and it is undervalued.

A bench of Justices J B Pardiwala and R Mahadevan said if the document in question is straightway referred to the Collector without recording any prima facie reason, it would vitiate the entire enquiry and the ultimate decision. 

"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," the bench said.

The court upheld the Madras High Court's judgment of 2015, which quashed and set aside the order passed by the Chief Revenue Controlling Officer-cum-theInspector General of Registration with respect to the stamp valuation of two properties sought to be registered by P Babu acquired through sale deeds.

The court said under Section 47-A(1) and under Section 47-A(3) of the Stamp Act, if the registering authority has reason to believe that the instrument of conveyance did not reflect the correct market value of the property, then it has the power to refer the documents to the Collector for determination of market value of the property and the Collector, on reference, may determine the market value of such property in accordance with the procedure prescribed. 

"Enquiry by the registering authority is a pre-condition for making reference to the Collector for determination of market value of the property. The determination of market value without notice of hearing to parties is liable to be set aside," the bench said in its judgment on January 3, 2025.

The court also said when the registering authority finds that the value set forth in an instrument was less than the minimum value determined in accordance with the rules, in that event, the registering authority is empowered to refer the instrument to the Collector for determination of market value of such property and the stamp duty payable.

The court pointed out the registering authority and the Collector are vested with the discretion to decide regarding the market value of the property, by the expression ‘reason to believe’.

"Such a reference is not a mechanical act, but the registering officer should have a basis for coming to prima facie finding of undervaluation of the property. Duty is enjoined upon the registering officer to ensure that Section 47-A(1) does not work as an engine of oppression nor as a matter of routine, mechanically, without application of mind as to the existence of any material or reason to believe the fraudulent intention to evade payment of proper stamp duty," the bench said.

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, the court said.

"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 word ‘reason to believe’ means some material on the basis of which the department can re-open the proceedings. However, satisfaction is necessary in terms of material available on record, which should be based on objective satisfaction arrived at reasonably," the bench said.

In the case, the purchaser of the properties showed the market value in sale deeds as Rs 1,20,000 and Rs 1,30,000. The registering authority, upon inquiry, fixed the market value of the properties at Rs 10,36,937 and at Rs 51,16,600.

On plea by the purchaser, the High Court found that the Form I notices failed to assign any reasons as to why the documents could be said to be undervalued and it was not clear as to what was the basis for the Special Deputy Collector (Stamps) to say that sale consideration shown in the two sale deeds was not correct. The High Court also found no basis or any relevant materials on record to take the view that the two documents were undervalued except the spot inquiry and local inspection.