2021 (5) TMI 768 - HC - Indian Laws

Recovery of outstanding dues of Municipal dues - who is liable to pay - Exemption from the liability to pay tax arises for consideration - whether the defendants can be called upon to discharge the liability? - HELD THAT - The submission on behalf of the defendants that the plaintiff cannot insist upon the payment of taxes and charges by the defendants unless the plaintiff unequivocally acknowledges the defendants as the lessee of the suit premises, does not merit acceptance. The basic premise of the plaintiff s case is that the term of lease, as modified by the indenture of modification, has expired. In the plaint, the plaintiff has made categorical assertion that the defendant No.2, the appropriate authority, is an illegal occupant and in unauthorised possession of the suit premises. It is not the requirement of law that unless the plaintiff acknowledges the continuation of status of lessee, the later cannot be called upon to discharge the liability under the instruments/contract, in terms of which it has entered into the demised premises. The question of bar under Order II Rule 2 to the tenability of the instant suit would warrant adjudication after providing an opportunity of hearing to the parties. Undoubtedly, the expiry of term of lease, as alleged by the plaintiff, constitutes the substratum of the plaintiff s case. The question as to whether the claim for damages, as prayed for in the instant suit, is based on cause of action distinct from the cause of action on the basis of which the suit for recovery of possession of the suit premises has been instituted would, thus, arise for consideration. However, for the purpose of determination of the prayer in the instant Notice of motion, especially, the prayer for direction to pay accumulated Municipal dues and the Municipal Taxes and charges, as they fall due, the challenge on the count of the bar under Order II Rule 2, may not apply with equal force. The basis of the alleged liability is the instruments under which the predecessor-in-interest of the defendants had entered upon the suit premises The term of property has wide amplitude. It is not restricted to lands and buildings but may subsume within its fold all forms of property. There is no warrant for restricting it to the property in which the Union of India has absolute ownership right and to assume that it does not cover the interest short of absolute ownership. The plaintiff being the owner of the suit premises is served with the notices under the Mumbai Municipal Corporation Act to pay the outstanding municipal dues, at the pain of coercive action. The defendants, who are indisputably in possession of the suit premises, contest the liability to pay the municipal dues. In terms of the instruments under which the predecessor-in-interest of the defendants entered upon the suit premises, the lessee is bound to pay the municipal taxes, cess and charges. Alternatively, the defendants claim immunity from payment of municipal taxes. It is necessary to modulate the relief in such a way that the defendants get an opportunity to pursue its stand that the suit premises is exempt from payment of taxes, with the Municipal Authorities and in the event of failure to obtain a favourble order of exemption, direct the defendants to pay the Municipal taxes and charges, as have accumulated up to date, and continue to pay the same as they fall due till the disposal of the suit. The Court is confronted with the issue of Municipal Corporation proceeding with coercive action to recover its dues. As observed above, in the absence of Municipal Corporation as a party to the instant proceeding, no restraint can be ordered against the Municipal Corporation. Even otherwise, it is well recognized that a Municipal Corporation cannot be restrained from levying and collecting taxes by lightly passing interim orders. O R D E R I) Defendants No.1 to 3 may pursue the claim with the Mumbai Municipal Corporation that the suit premises is exempt from payment of taxes, cess and charges, within a period of two months. II) If the defendants do not get a declaration/order/ clarification that the suit premises is exempt from the payment of taxes, cess and charges from the Municipal Corporation, within the said period of two months, the defendants shall pay the Municipal dues accumulated till 31st March 2021 and continue to pay the Municipal taxes and charges, as they fall due henceforth. III) In the event, any coercive action is taken by the Municipal Corporation, in the intervening period of two months, costs and consequences thereof shall also be borne by the defendants No.1 to 3.

Issues Involved:
1. Payment of outstanding municipal dues.
2. Payment of future municipal taxes.
3. Compensation and damages for unpaid amounts.
4. Possession of the suit property.
5. Juridical authority of the Income Tax Department to continue possession.
6. Exemption from municipal taxes under Article 285 of the Constitution of India.
7. Bar under Order II Rule 2 of the Code of Civil Procedure.
8. Liability of municipal taxes and charges.

Issue-wise Detailed Analysis:

1. Payment of Outstanding Municipal Dues:
The plaintiff sought a direction for the defendants to pay ?1,67,20,038/- towards outstanding municipal dues up to 31.3.2012. The court examined the indenture of sub-lease and modification, which explicitly cast the liability on the lessee (defendants) to pay municipal taxes and charges. The court concluded that the defendants are bound to pay the accumulated municipal dues.

2. Payment of Future Municipal Taxes:
The plaintiff also sought a direction for the defendants to pay ?5,68,798/- every six months towards future municipal taxes. The court reiterated that the liability to pay municipal taxes and charges emanates from the contractual obligations under the lease agreements. The court directed the defendants to continue paying municipal taxes as they fall due.

3. Compensation and Damages for Unpaid Amounts:
The plaintiff sought ?148.63 crores towards compensation, damages, and interest on unpaid amounts. The court noted that the entitlement to compensation and damages is a matter for trial and cannot be adjudicated at this stage. The prayer for compensation was not granted as interim relief.

4. Possession of the Suit Property:
The plaintiff sought immediate and peaceful possession of the suit property. The court observed that the entitlement to possession is to be adjudicated in Suit No. L-164/2014, and therefore, this prayer was not granted as interim relief in the present notice of motion.

5. Juridical Authority of the Income Tax Department to Continue Possession:
The court examined the juridical status of the defendants, who claimed to have stepped into the shoes of the original sub-lessee, Swastik India Pvt. Ltd., following the acquisition under Section 269-UD(1) of the Income Tax Act, 1961. The court noted that the defendants' claim of absolute ownership could not be sustained, and they were in possession as lessees.

6. Exemption from Municipal Taxes under Article 285 of the Constitution of India:
The defendants claimed exemption from municipal taxes under Article 285 of the Constitution. The court noted that the question of exemption cannot be examined in this proceeding without the Municipal Corporation being a party. The court directed the defendants to pursue their claim of exemption with the Municipal Corporation within two months.

7. Bar under Order II Rule 2 of the Code of Civil Procedure:
The defendants contended that the suit is barred by Order II Rule 2, as the plaintiff could have sought the relief of damages in the earlier suit. The court held that the question of bar under Order II Rule 2 requires adjudication after providing an opportunity for hearing to the parties. For the purpose of the notice of motion, this challenge was not considered a bar to directing payment of municipal dues.

8. Liability of Municipal Taxes and Charges:
The court concluded that the defendants, being in possession of the suit premises, are liable to pay municipal taxes and charges as per the lease agreements. The court directed the defendants to pay accumulated municipal dues if they do not obtain a declaration of exemption from the Municipal Corporation within two months.

Order:
1. Defendants to pursue the claim of exemption with the Municipal Corporation within two months.
2. If no exemption is obtained, defendants to pay accumulated municipal dues and future taxes.
3. Any coercive action by the Municipal Corporation in the interim to be borne by the defendants.
4. Other prayers in the notice of motion were rejected.
5. No costs.

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