Vehicular Toll Is Tax And Not Mere Contractual Debt Between Collection Company And Civic Body: Bombay High Court

“MEPIDL was collecting and remitting toll. The question, therefore, is not whether MEPIDL was doing so under contract but what is it that it was collecting and remitting because it is this amount that is sought to be recovered. Toll is undoubtedly a tax. It is so defined. The statute so says. Even the Bye-laws make this abundantly clear. This completely answers the first aspect of the matter; and there is no question of limiting the recovery to a contractual debt”, the court held.

A division bench of Justices G. S. Patel and S.G. Dige further held that once Tehsildar has directed a bank to freeze the accounts of a defaulter against whom recovery certificate is issued, the bank has no power to invite objections from the defaulter.

“The bank has no authority in law to invite suggestions and objections from a defaulter against whom there is a Revenue Recovery Certificate. Once the Tahsildar has issued a notice to freeze the account, the bank must comply, and it is then for the defaulter to apply to a Court or an authority to have that account released from freezing”, the court held.

MCD contracted out the task of toll tax collection to MEPIDL. Claiming that MEPIDL did not make the required remittances and a large amount is due, MCD terminated the contract. Delhi HC dismissed MEPIDL’s challenge to the termination.

The MCD claimed that as of April 10, 2021, MEPIDL owed about 4000 crores which has since increased. It issued distress warrants to recover the amount. MEPIDL challenged one distress warrant before Delhi HC but no stay was granted.

MEPIDL has no assets in Delhi. Hence, MCD requested the local authorities to issue notice of attachment of MEPIDL’s movable and immovable assets within the jurisdiction of the Bombay HC. The Kalyan Janata Sahakari Bank Ltd., instead of implementing Tehsildar’s notice to freeze MEPIDL’s account, issued it a show-cause notice.

In rival writ petitions, MEPIDL challenged the distress warrants and attachment notices while MCD challenged the action of the Bank. The court granted MCD’s prayers.

The court found the action of the bank “indefensible” and directed the bank to recall the show-cause notice. Court also restrained the bank from issuing any communication to MEPIDL that may cause it to remove its money from the account.

Senior Advocate Venkatesh Dhond with Advocate Rashmin Khandekar for MEPIDL contended that MCD’s claim is not a tax but simply a contractual debt payable under the contract. Further, the distress warrant must be confined to property which is located in Delhi.

The court said that toll is a tax as defined by the Delhi Municipal Corporation Act, 1957 (DMC Act) and Toll Tax Bye-Laws. Hence, there is no question of limiting the recovery to a contractual debt, the court held.

Section 156(1) of the DMC Act provides the mode for recovery of tax in case of default via distress and sale of movable property or attachment and sale of immovable property of the defaulter.

Section 157(1) provides that MCD may distrain any property of the defaulter described in this section in any place in Delhi subject to certain exceptions.

The court said that section 157 is an empowering provision. It does not constrain section 156 which does not have any such geographical limitation.

The court said that if MEPIDL’s submission is accepted, then it would mean that MCD can never engage a contractor who has no property in Delhi and if it does engage such a contractor, the contractor would be immune to recovery. The court termed this interpretation of Section 156 “absurd and untenable”.

Section 455 of the DMC Act provides for recovery of “certain dues” as arrears of tax. The court said that it must be read with section 156. An arrear of tax can be recovered in the manner given in section 156 and there is no geographical limitation in section 455 either, the court concluded.

The court noted that section 455 is a residuary provision applicable in any case not otherwise covered in the Act or Bye Laws. Thus, even if the claim were merely a contractual claim as contended by MEPIDL, it would still come under section 455 as a “certain due”, the court held.

The court said that once the Tehsildar has received the Revenue Recovery Certificate, there is no need to satisfy himself and he must act on it. Section 3(3) of the Revenue Recovery Act does not provide for discretion of the Tehsildar, the court said.

Hence, the court held that Tehsildar has not acted illegally. Merely because it is uncomfortable for MEPIDL is not a ground to interfere. Further, if this is a purely contractual dispute as claimed by MEPIDL, the remedy doesn’t lie in writ court, the court stated.

The court said that MEPIDL is trying to stymie the recovery proceedings after failing to get any relief from Delhi HC. “The entire trajectory of this is to be deprecated. When a principle challenge against the termination fails and while an appeal is pending, one distress warrant is challenged in Delhi only to be allegedly later withdrawn and other distress warrants are now brought before this Court”, the court observed.

Case no. – Writ Petition No. 10304 and 8677 of 2022

Case Title – MEP Infrastructure Developers Ltd. v. South Delhi Municipal Corporation with Connected matter

Citation: 2023 LiveLaw (Bom) 92