Delhi HC strikes down New Delhi Municipal Council (Determination of Annual Rent) Bye-Law, 2009

The Delhi High Court has struck down the New Delhi Municipal Council (Determination of Annual Rent) Bye-Law, 2009 as ultra vires the New Delhi Municipal Act, 1954 (NDMC Act)..The judgment was rendered by a Bench of Justices S Muralidhar and Pratibha M Singh in batch of writ petitions challenging the Bye-law..Senior Advocates BB Gupta and Maninder Acharya appeared for the petitioners. BB Gupta was briefed by a team from Karanjawala & Co. led by partner Seema Sundd. Additional Solicitor General Sanjay Jain appeared for NDMC..The impugned Bye-law sought to bring about a change in the method of arriving at the rateable value for the purposes of property tax. As per the existing system, the rateable value was determined on the basis of the annual rent at which the land or buildings may reasonably be expected to be let from year to year..The Bye-law sought to change that by introducing the Unit Area Method (UAM). In the UAM, first the Unit Area Value (UAV) i.e. per sq. Ft./meter of a property is fixed with reference to the characteristics of the property such as location, occupancy, age, structure. The UAV is then multiplied by the area of the vacant land or covered space to arrive at its annual value..The new impugned Bye-law was challenged on the ground that UAM cannot be introduced by way of Bye-laws without amending the NDMC Act. The contention of the petitioners was that the Bye-law cannot be justified with reference to the rule-making power conferred on the NDMC under Section 388 (1) A (9) of the NDMC Act..It was further contended that the Bye-law is ultra vires the NDMC Act, as it goes far beyond the scope and ambit of the NDMC Act. The second ground of challenge was that the impugned Bye-laws are arbitrary, unreasonable, discriminatory and irrational and, therefore, violative of Articles 14 and 19 of the Constitution of India..Sanjay Jain, appearing for NDMC, submitted that NDMC area was of a different character where only 20 per cent would be the properties which are available for tax. Therefore, it had to be viewed differently from other areas where UAM had been introduced. He submitted that the introduction of the UAM was preceded by a very detailed exercise undertaken by the NDMC Special Committee. The changes brought out by the new impugned Bye-laws were deliberated and well-intended and for the benefit of the tax payers, argued Jain..The Court, placing reliance on a slew of judgments rendered by the Supreme Court, made it clear that if the rules or Bye-laws framed are beyond the scope and purview of the rule-making power of the authority framing the rule, such rules framed would be void..Regarding the instant case, the Court held that impugned Bye-laws in the present case seek to introduce a completely different system of rateable value than what is provided under the NDMC Act..“While the NDMC Act provides for rateable value to be determined on the basis of the annual rent at which the land or building might reasonably be expected to let from year to year, the UAM envisages fixing the UAV with reference to the characteristics of a property and then multiplying the UAV by the area of the vacant land or covered space to find out the ‘annual value’.”.The Court observed that the NDMC was aware that the change could be brought about only by amending the NDMC Act. But the authority chose not to do so, to save time..“It is not as if the NDMC was unaware that this could be done only by amending the NDMC Act. Yet only because this might be a time consuming process it chose the short cut of making the new impugned Bye-laws without amending the NDMC Act.”.The Court held that a method of levy, assessment or collection of taxes different from what is provided under the NDMC Act cannot be introduced by Bye-laws under Section 388..“Section 388 (1) of the NDMC Act begins with the expression “Subject to the provisions of this Act”. Clearly, therefore, the legislative intent was to confer upon the NDMC the power to make Bye-laws which were subject to and consistent with the provisions of the Act….A method of levy, assessment, collection of taxes which is different from what is provided under the NDMC Act cannot possibly be introduced by the Bye-laws in terms of Section 388 (1) A (9) of the NDMC Act. That would make the Bye-laws inconsistent with and contrary to the NDMC Act.”.The Court, therefore, proceeded to quash the Bye-law as ultra vires the NDMC Act. It also invalidated all the actions taken by the NDMC under the new impugned Bye-law in terms of levy, assessment, collection and enforcement of demand of property tax..Read the judgment below.