The Division Bench of the Delhi High Court (Delhi HC), in its Judgment dated 10 August 2017 (Judgment) has struck down the New Delhi Municipal Council (Determination of Annual Rent) Bye-Laws, 2009 (Bye-Laws) as being ultra vires the provisions of the New Delhi Municipal Council Act, 1994 (NDMC Act). The Bye-Laws were struck down as they were held to be in excess of the scope and ambit of the powers vested in the New Delhi Municipal Council (NDMC) to make Bye-laws under Section 388 (1) A (9) of the NDMC Act. Since the Bye-Laws came into force, numerous affected tax payers (Petitioners) proceeded to challenge the Bye-Laws on various grounds. A total of 28 writ petitions came to be filed before the Delhi HC and were finally heard and disposed of vide a common Judgment by a Division Bench comprising of Hon’ble Mr Justice S. Muralidhar and Hon’ble Ms Justice Prathiba M. Singh.

Background

The legislative scheme under Section 63 (1) of the NDMC Act envisages the determination of the rateable value of lands and buildings only on the basis of the ‘annual rent’ at which the land or building might reasonably be expected to be let, from year to year.

Contrary to this legislative scheme, at a meeting held on 13 February 2008, the NDMC adopted a Resolution with the effect of an in-principle acceptance to introduce a modified form of Unit Area Method (UAM) for all properties and thereby amended the existing Bye-Laws.

Thus, by way of the Bye-Laws (which came into force on 1 April 2009) and without the prior amendment of the relevant provisions of the NDMC Act, the NDMC brought about a major change in the method of arriving at the rateable value of property for the purposes of levying property tax. The Bye-Laws purported to change the existing system of determining the rateable value on the basis of the annual rent to a UAM. Further, it also introduced the Base Unit Area Value (UAV) concept with an assigned value of INR 1,000 (Indian Rupees One Thousand) per square metre, in respect of both, the covered space of a building and also land not constructed upon pending further fixation by the NDMC Valuation Committee (Committee). This is especially relevant as the Committee has been constituted under the Bye-Laws. As per the UAM, the UAV is to be multiplied by the area of the vacant land or covered space to arrive at the annual rateable value.

The Challenge

Broadly, the Petitioners contended that the UAM could not be introduced by way of the new impugned Bye-laws without amending the NDMC Act, which even as of today contemplates determination of the rateable value on the ‘annual rent’ basis. Further, it was contended that the Bye-laws are ultra vires the NDMC Act as they go far beyond the scope and ambit of the rule making power conferred on the NDMC under Section 388 (1) A (9) of the said Act.

Specific to the aforementioned ground, the submissions of the Petitioners may be summarised as follows:

  • The Bye-laws are ultra vires the provisions of the NDMC Act and are beyond the powers delegated to the NDMC under Section 388 (1) A (9) of the NDMC Act.
  • The Bye-laws do not supplement the existing express provisions of the NDMC Act, but supplant and overwrite them. The amendment by way of Bye-Laws goes against the well settled legal position that a subordinate legislation must yield to the primary legislation.
  • The NDMC adopted a shortcut to bring about whole scale changes to the system of determination of rateable value, whereas the Municipal Corporation of Delhi went through the proper route of amending the Delhi Municipal Corporation Act, 1957 to introduce the UAM.

The second broad ground of challenge was that the Bye-laws are arbitrary, unreasonable, discriminatory and irrational and are therefore, violative of Articles 14 and 19 of the Constitution of India. It may be noted that since the Delhi HC upheld the challenge of the Petitioners as to the validity of the impugned Bye-laws on the first ground itself, the other grounds of challenge were not considered as necessary for examination. The remainder grounds were left open to be urged if and when the NDMC Act got amended to bring about the change in the determination of the rateable value.

The Judgment

The Delhi HC struck down the Bye-Laws as being ultra vires the provisions of the NDMC Act, holding them to be in excess of the scope and ambit of the powers vested in the NDMC to make Bye-Laws under Section 388 (1) A (9) of the said Act inasmuch as such powers are “Subject to the provisions of the Act”.

Further, the Judgment went on to invalidate and deem unenforceable all actions taken and demands made by the NDMC under the Bye-Laws in terms of levy, assessment, collection and enforcement of demand of property tax.

The Delhi HC also directed that in terms of the interim order passed, the excess of the tax deposited must be refunded, but the determination of such excess will have to await the assessments made in accordance with the extant provisions of the NDMC Act.

Comment

This judgment assumes importance as the impugned action of the NDMC in introducing the UAM by way of the impugned Bye-Laws was purportedly undertaken after a very detailed exercise by the NDMC Special Committee with the intention of benefitting the tax payers. The Delhi HC made it clear that notwithstanding the intention of the NDMC, statutory bodies cannot misuse the power to make rules and regulations to enlarge their powers beyond the scope intended by the primary legislation.

It will now be interesting to see how the NDMC reacts to this Judgment of the Delhi HC. The following two possibilities, in no order of likelihood, seem to be in the offing:

  • The NDMC may accept the decision and go through the proper, albeit “lengthy and time consuming” route of an amendment in the relevant provisions of the NDMC Act and thereafter frame appropriate Bye-Laws; or
  • It may challenge the Judgment and file an appeal against the same.