India: Are Developers Exempt From Payment Of Development Charges For Redevelopment Of Government Owned Land?

In this article, we focus on the recent judgment of the Bombay High Court¹ in several writ petitions, on whether development charges are payable under the Maharashtra Regional Town Planning Act, 1966 ("MRTP Act") for the redevelopment of land or buildings owned by the Central or State Government or local authorities and the interpretation of Section 124F of the MRTP Act.

Background:

The subject matter of the writ petitions were various land parcels owned by the Municipal Corporation of Greater Mumbai ("MCGM") or the Mumbai Housing and Area Development Authority ("MHADA"). In some cases, these land parcels were leased to certain tenants or societies who had constructed structures thereon. In other cases, buildings constructed by the MCGM/MHADA on such land parcels were now dilapidated.

The tenants/occupants/societies of such structures of lands owned by MHADA/MCGM had now appointed developers for redevelopment of such structures under provisions of the applicable development control regulations. The MCGM or MHADA, as the case may be, being planning authorities as also owners of the land parcels, had issued permissions or letters of intent which levied development charges on the societies/ developers in respect of the development of such land parcels.

These societies/developers sought to challenge the levy of such development charges on the grounds that Section 124F(1) of the MRTP Act exempts levy of development charge on the development of any land or building vested in or under the control or possession of the Central or State Government or of any local authority, and land owned by the MCGM/MHADA being developed by them, would fall within this exemption.

Contentions of the Petitioners:

The Petitioners submitted that Section 124 F of the MRTP Act provides that for exemption from levy of development charges, there should be institution of use or change of use or development of any land or the building which is (i) vested in or (ii) under the control of or (iii) in the possession of the Central Government or State Government or Local Authority. It is enough for a person seeking exemption of development charge that the property belongs to a local authority and it vests in the local authority. The Petitioners stated that it should be sufficient for the person claiming exemption to prove either 'vested in' or 'in control of' or 'in possession of' the respondent-Corporation. They submitted that assuming the word 'vested in' is the term of ambiguous import, the exemption would nevertheless be available to lands which satisfied either one of the three criteria mentioned in Section 124F since the three phrases are used with 'or' making them disjunctive.

Under the lease deeds under which the properties were let out by MHADA , there was prohibition upon the lessees not to assign, sub-let or under-let or otherwise transfer in any other manner whatsoever, including parting with possession of the whole or any part of the land or its interest thereunder or benefit of the said lease to any person or persons or change of user of the subject land or any part thereof without the prior written permission of MHADA. Thus, there is a control of MHADA on the said land as prior permission is required for use of FSI, for enhanced lease rent, for permission to redevelop and reconstruction.

Further, the Petitioners relied upon the Statement of Objects and Reasons for inserting Section 124A and 124F of the MRTP Act. It was submitted by the Petitioners that development charge is a tax and cannot be levied, assessed and recovered without authority of law under Section 124A of the MRTP Act. As such, the development charge is in the nature of compulsory exaction of money and therefore a "tax."

Placing reliance upon Article 265 of the Constitution of India, the Petitioners submitted that no tax shall be levied or collected except by authority of law and the provision under Section 124F(1) of the MRTP Act is clear and unambiguous and must be given effect to by its literal meaning.

Contentions of the Respondents:

The Respondents argued that Section 124F does not indicate a legislative intent to exempt from the liability to pay development charges on development being carried on by third parties, on lands, which are 'owned' by the Government or Local Authorities. The term "vested" cannot be equated to "ownership". The language / plain terms of Section 124F does not give an exemption to a private or third party, who is carrying on development / redevelopment in his own right and for his own benefit, on the ground that the land on which such development is taking place is 'owned' by the local authorities. It is submitted by the learned senior counsel that Section 124F by its terms only gives an exemption to development of lands "vested in or under the control or possession of the Central or State Governments or of any Local Authority".

Further, the Respondents stated that in the context in which it has been used in Section 124F i.e. along with the words "under the control or possession", the word 'vested', connotes vested in enjoyment or use. So construed, Section 124F gives an exemption from levy of development charges, where the land, which is being developed, is in the present enjoyment or use of the Government or Local Authority, or under the control or possession of the Government or the Local Authority- as in all such cases, the development even if carried out by a third party, would necessarily have to be at the instance of and for the benefit of the Government or Local Authority.

Judgment

The Bombay High Court has dismissed the Writ Petition stating that the Section 124 F does not contain any provision providing for exemption from payment of development charges in case of development being carried out by the developers on commercial terms.

In explaining the purpose and use of Section 124 F, the Bombay High Court clarified that statement of objects and reasons indicates that the said payment of development charge is exempted in cases where the Central Government, State Government or Local Authority is itself undertaking the activity of institution or change of use or development of its land or if the development is carried out at the instance of or for the benefit of the Central Government, State Government or Local Authority. In the present writ petitions, upon redevelopment of the subject plots by the developer, the building would be owned by either the society or occupants for whose benefits these buildings would be developed not only for rehabilitating the occupants but also for disposal of the surplus tenements for consideration. Physical possession of these properties also is with the lessees or tenants or the occupants who are allowed to occupy the buildings. Ownership of the buildings to be constructed by the developers/societies would vest in the occupants therein or the societies and not in the owners of the lands. The petitioners are not appointed by the respondents as contractors and developers. Even if the land of MHADA/MCGM is redeveloped by the petitioners, there is no transfer of land or any part thereof in favour of the petitioners. The levy under Section 124A of the MRTP Act is person centric and not property centric.

The words 'vested in' are construed as enjoyment or use by the Respondent and the term 'control' or 'possession' does not make any reference to title nor relation to ownership. The word 'vested in' or 'control' or 'possession' of the Central or State Government or of any local authority cannot be read disjunctively. The expression 'or' thus has to be read as 'and'. Further, if on the wordings of the notification, the benefit is not available, then the Court would not grant benefit by stretching the words of the notification or by adding words to the notification.

It was further held that the said provision does not contemplate the development done by others and merely because the LOI has been granted by the Municipal Corporation or MHADA as Planning Authority in favour of the petitioners for redevelopment, it would not fall within the parameters of exempted entitlement under Section 124F of the Mumbai Municipal Corporation Act. The Hon'ble further Court stated that in the LOI issued by the Municipal Corporation, it was clearly provided that the development charges, if any, would be payable by the Petitioners.

Conclusion:

Thus, there is no such distinction made in Section 124A of the MRTP Act that leasehold plot cannot be developed or that no development charges would be required to be paid for carrying out development or redevelopment by a third party on leasehold plot. Purposive interpretation can be given only when there is some ambiguity in the language of the statutory provision or it leads to absurd results. Section 124F has to be read ejusdem generis with remaining part of Section 124F, vesting, control, possession as well as, in view of the fact that the exemption is only granted for the development undertaken by the Central or the State Government or Local Authorities and not by private parties. The concept of dual ownership comes into play while considering municipal or government held land as the land, while owned by the authorities, the buildings would be owned by the developers.

Thus, the Bombay High Court has now clarified that developers cannot avail for themselves the exemption under Section 124F of the MRTP Act for developing government-owned land for their own benefit.

Footnote

1.  Order passed on 20^th October 2022 in Writ Petition No. 1334 of 2019 with Interim Application No. 2069 of 2021 clubbed with several other writ petitions.

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