The Bombay High Court recently set aside a penalty of nearly Rs. 432 Crores imposed on Reliance Industries Limited (Reliance) and Raghuleela Builders by the Mumbai Metropolitan Region Development Authority (MMRDA), finding that it was ex-facie unreasonable, unjustified and discriminatory.
The Court, thereby, quashed 2014 MMRDA orders for the alleged delay in construction of a ‘One BKC’ building in the Bandra-Kurla Complex of Mumbai, concluding that they were void ab initio. A Division Bench of Justices Ranjit More and Bharati Dangre on Wednesday allowed the writ pleas filed by Reliance and Raghuleela Builders challenging the said 2014 orders.
The recovery orders under challenge cited a penalty aggregating to Rs. 432 crore, which included Rs. 273 crore to be paid up to August 2015 and interest thereon of Rs. 159 crore. On default in payment, the MMRDA had threatened to determine the lease, enter upon the premises and recover the amount of dues as arrears of land revenue. The Court eventually found that,
“This is ex-facie unreasonable, unjustified, discriminatory, without jurisdiction and in violation of fundamental rights guaranteed under the Constitution of India".
The Court had earlier restrained respondent MMRDA from taking any coercive steps against the Petitioners.
Reliance Industries has been constructing a convention-cum-exhibition centre on the Bandra-Kurla plot. The MMRDA is the planning authority in respect of the Bandra Kurla Complex notified area region under the Development Control Regulations, 1979.
In February and December 2014, the MMRDA had issued letters to the petitioners demanding payment of penalty premium at 10 per cent per per year on account of the alleged delay in completing the construction of nearly 30,000 square metres built up area in the City.
The tripartite lease-deed for the said plot for construction was executed on July 15, 2008. According to the lease, the petitioners were required to build, completely finish, and make fit for occupation a multi-storeyed car parking and commercial complex within a period of four years from the date of the lease.
On April 10, 2013 the petitioners sought an extension for completion of the construction and requested the MMRDA that period of four years be computed from the date of issuance of commencement certificate June, 2011. However, the MMRDA, in January, 2014 responded, informing that the petitioners’ request for extension of time without charging additional premium was not acceptable.
In February 2014, the MMRDA intimated that it would give a two year extension, with a payment of additional premium. A demand notice for the payment of penalty followed in August the same year. In December 2014, the MMRDA rejected a September representation made by Reliance to review its demand notice.
On August 26, 2015, the MMRDA passed a resolution for extending the time period for completing construction from 4 years to 6 years only for leases executed after the date of the resolution. In September 2017, another notice was issued with MMRDA demanding that Reliance pay the penalty to avoid coercive action. The penalty imposed was thereafter challenged in the High Court by Reliance and Raghuleela Builders.
Senior Counsel Aspi Chinoy for the petitioner Reliance Industries submitted that the MMRDA letters were arbitrary as the authority had been considering extension of the period for completion in view of the delays involved in securing permissions from the Ministry of Environment & Forest (MoEF), the High-Rise Committee and other departments since 2012.
On the other hand, Senior Advocate Prasad K Dhakephalkar, representing MMRDA, opposed the plea and challenged its maintainability. Relying on the Supreme Court's ruling in Joshi Technologies vs Union of India, the MMRDA submitted that petitioners have an alternative remedy to resolve the disputes under the MMRD Act. It was also argued that the plea was barred by law of limitation.
What the High Court held?
After perusing material on record, Justice Ranjit More, who authored the judgement for the Bench, observed that records show that the MMRDA failed to hand over a fully demarcated plot to Reliance, who was the successful bidder.
Moreover, the Court noted that the MMRDA had constituted a single member committee with a retired Judge of the Supreme Court to ascertain whether the planning authority should give concessions in recovering the premium, considering the time required to obtain regulatory clearances. The Committee, in turn, had held that charging the premium was illegal. The Court proceeded to hold that the 2015 MMRDA resolution appeared to be arbitrary, discriminatory and without any basis or justification.
“The said set of circumstances are prevailing for the construction being carried out under the leases executed prior to 26th August 2015. Therefore, not extending this benefit of this extension of time from 4 years to 6 years to the prior leases in respect of other plots in the BKC, is completely arbitrary, discriminatory, capricious and violative of Article 14 of the Constitution of India.”
The Court noted that the classification sought to be made between the leases prior to August 2015 is not founded on ‘intelligible differentia’ and that it has no logic, rational, nexus to the object sought to be achieved. In this regard, the Court noted,
“The MMRDA has sought to treat equals as unequal. The lessees of plots are being discriminated on the basis of their date of execution of their leases. The lessees who are placed in similar circumstances prevailing for construction in Bandra Kurla area are entitled to equal treatment guaranteed under Article 14 of the Constitution of India.”
Ultimately, the Court found sufficient merit in petitioners’ claims and held,
“The impugned demand of penalty in the form of premium and interest thereon is untenable, without jurisdiction and non-est. The same are thus quashed and set aside as void ab initio.”
Tags : #Business ; #Penalty ; #Reliance Industries Limited ; #Bombay High Court