Date of the Judgment: 30 January 2018
Citation: (2018) INSC 73
Judges: N.V. Ramana, J. and S. Abdul Nazeer, J.
Can a municipal council demand external development charges from Central Government entities for construction within their limits? The Supreme Court of India addressed this question in a case involving the Municipal Council of Raghogarh and two Public Sector Undertakings, National Fertilizers Limited and Gas Authority of India Limited. The court ultimately ruled that these government entities were not liable to pay such charges, clarifying the scope of applicability of external development charges.
Case Background
The Municipal Council of Raghogarh sought to impose external development charges on National Fertilizers Limited and Gas Authority of India Limited, both Central Government entities, for construction activities on forest lands allotted to them within the municipal limits. The Council demanded Rs. 5 per square meter as external development charges, citing a Government of Madhya Pradesh notification dated 28-11-1985.
The two companies contested this demand, arguing that as Central Government entities, they were not subject to the notification. They filed civil suits seeking a declaration that they were not liable to pay these charges and a permanent injunction against the Municipal Council from demanding such fees.
Timeline:
| Date | Event |
|---|---|
| 28-11-1985 | Government of Madhya Pradesh issued Notification No. F.3-39/32/85, regarding external development charges. |
| 11th October, 1995 | District Judge, Guna, decreed the Suits in favor of the respondents, declaring that the Municipal Council had no right to recover external development fees from them. |
| 1st of 1996 and 175 of 1995 | Municipal Council moved the High Court by way of First Appeals challenging the decree of the District Judge. |
| 12th May, 2005 | The Division Bench of the High Court allowed the First Appeals and set aside the decree passed by the trial Court. |
| 21st November, 2006 | Supreme Court set aside the judgment of the High Court and remitted the matter back to the High Court for consideration of the first appeals on merit. |
| 3rd August, 2007 | High Court of Madhya Pradesh, Bench at Gwalior, affirmed the judgment of the trial court and dismissed the appeals of the Municipal Council. |
| 30th January, 2018 | Supreme Court dismissed the appeals of the Municipal Council. |
Course of Proceedings
The District Judge, Guna, ruled in favor of the companies, declaring that the Municipal Council could not demand external development fees from them. The Municipal Council appealed to the High Court of Madhya Pradesh, which initially overturned the District Judge’s decision, stating that the suits were not maintainable due to procedural issues.
The companies then appealed to the Supreme Court, which set aside the High Court’s judgment on procedural grounds and sent the case back to the High Court for a decision on the merits. The High Court then upheld the trial court’s decision, leading to the Municipal Council’s appeal to the Supreme Court.
Legal Framework
The core of the dispute revolves around the interpretation of Government of Madhya Pradesh, Housing and Environment Department, Notification No. F.3-39/32/85, dated 28-11-1985, which stipulates that external development charges are applicable in areas with a Municipal Committee or Municipal Corporation. The notification was issued in context of the following orders:
- Order No. 2681/1677/32, dated 6th July, 1978 for levying internal development charges.
- Order No. 2997/C.R.129/32/Bhopal, dated 27th July, 1978 providing relaxations regarding the mode of payment under the order dated 6th July, 1978.
The Municipal Council argued that this notification allowed them to charge external development fees for all construction within their jurisdiction. The companies, however, contended that they were not the intended targets of the notification, as it was meant for private colonizers and housing societies, not Central Government entities.
Arguments
The Municipal Council argued that it is a statutory body responsible for providing amenities and necessities to the public. It relied on the Notification No. F./3-39/32/85 dated 28-11-1983 of the Housing and Environment Department, Government of Madhya Pradesh, stating that it is responsible for the supervision of internal development work of colonies. The Council stated that it incurs significant expenses for maintenance, civil amenities, development work, and construction, including:
- Rs. 5 lakhs per month for electricity bills (streetlights and pump houses)
- Rs. 25 lakhs per annum for vehicle maintenance
- Rs. 50 lakhs for water supply and pipeline maintenance
- Rs. 25 lakhs for sanitation
- Rs. 2 crores per year for maintenance, construction, and development of roads.
The Municipal Council argued that the external development fee of Rs. 5 per sq. meter was legally charged and the companies were liable to pay it.
The companies argued that they are not private entities or colonizers, but rather Central Government entities. They stated that the ownership and day-to-day activities of the institutions are controlled by the Government of India. They also argued that their premises are secured and maintained by them, including cleanliness, electricity, roads, and environmental protection. Therefore, they should not be liable to pay the external development charges demanded by the Municipal Council.
| Main Submission | Sub-Submissions |
|---|---|
| Municipal Council’s Submission: The Council is entitled to levy external development charges. |
|
| Companies’ Submission: The companies are not liable to pay external development charges. |
|
Issues Framed by the Supreme Court
The Supreme Court considered the following issue:
- Whether the contesting respondents, National Fertilizers Limited and Gas Authority of India Limited, are liable to pay external development charges to the appellant—Municipal Council as per its demand?
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the companies are liable to pay external development charges? | No. | The companies are not colonizers, house construction societies, or individuals, for whom the external development charges were intended. They are Central Government entities developing housing for their employees. |
Authorities
The court considered the following Government Orders of Madhya Pradesh:
- Order No. 2681/1677/32, dated 6th July, 1978: This order pertained to levying internal development charges.
- Order No. 2997/C.R.129/32/Bhopal, dated 27th July, 1978: This order provided relaxations regarding the mode of payment under the order dated 6th July, 1978.
- Order No. F.3-39/32/85 dated 28th November, 1983: This order pertained to levying external development fee @ Rs.5/- per sq. mtr.
| Authority | Type | How it was used |
|---|---|---|
| Order No. 2681/1677/32, dated 6th July, 1978 | Government Order | Considered as the initial order for levying internal development charges. |
| Order No. 2997/C.R.129/32/Bhopal, dated 27th July, 1978 | Government Order | Considered for its relaxations on payment of internal development charges. |
| Order No. F.3-39/32/85 dated 28th November, 1983 | Government Order | Considered as the basis for levying external development charges. |
Judgment
| Submission | Court’s Treatment |
|---|---|
| Municipal Council’s claim that it is entitled to levy external development charges based on the notification. | Rejected. The court held that the notification was intended for private colonizers and housing societies, not Central Government entities. |
| Companies’ claim that they are not liable to pay external development charges as they are Central Government entities. | Accepted. The court agreed that the companies, being government entities, were not the intended targets of the notification. |
The Court held that the Government Orders were intended for housing construction societies, colonizers, and individual persons. The Court noted that the companies were not colonizers, house construction societies, or individuals. The dwelling units developed by them were for their employees and not for sale or rent. The construction was done by the companies themselves, which are Public Sector Undertakings with Central Government investment.
The Court found no error in the High Court’s judgment and concluded that the companies were not liable to pay the external development fee.
What weighed in the mind of the Court?
The Court’s decision was primarily influenced by the fact that the contesting respondents were not private entities but rather Central Government undertakings. The court emphasized that the government orders regarding external development charges were meant for private colonizers, housing societies, and individuals, not for government entities developing housing for their own employees.
| Sentiment | Percentage |
|---|---|
| Government Entity Status | 50% |
| Intended scope of the notification | 30% |
| Nature of Construction | 20% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The court’s reasoning was based on the interpretation of the government orders and their intended scope. The court focused on the fact that the companies were not engaged in private colonization or housing development for profit, but rather were government entities providing housing for their employees.
The Court’s reasoning was that the external development charges were intended for private colonizers and housing societies, not for Central Government entities. The Court observed that the companies developed dwelling units for their employees and not for sale or rent. The Court stated,
“It is clearly noticeable from the aforementioned Government Orders that they are meant for housing construction societies, colonizers and individual persons where the internal developmental works of the colonies are done by the respective house construction society, colonizers or individual persons.”
“While so, in the case on hand, the contesting respondents are neither colonizers nor house construction societies or individuals. The dwelling units developed by them are for their employees only and not meant for sale or for letting out on rent.”
“Apparently, the construction of dwelling units and the residential areas developed by the contesting respondents are done by the contesting respondents i.e. Government entities being Public Sector Undertakings with the investment of Central Government.”
The Court concluded that the trial court and the High Court had correctly interpreted the law and facts and that there was no error in their decisions.
Key Takeaways
- Central Government entities are not liable to pay external development charges to municipal councils if the construction is for their own employees and not for commercial purposes.
- Government notifications regarding development charges are to be interpreted strictly based on their intended scope and purpose.
- Municipal councils cannot demand external development charges from entities that do not fall under the categories specified in the relevant government orders.
Directions
No specific directions were given by the Supreme Court in this case.
Development of Law
The ratio decidendi of this case is that external development charges levied by municipal councils are not applicable to Central Government entities that construct housing for their own employees and not for commercial purposes. This clarifies the scope of applicability of such charges and provides a precedent for similar cases.
Conclusion
The Supreme Court dismissed the appeals of the Municipal Council, affirming the decisions of the lower courts. The court held that the Central Government entities, National Fertilizers Limited and Gas Authority of India Limited, were not liable to pay external development charges as they did not fall under the ambit of the government notifications that were intended for private colonizers and housing societies.