Safiya Malik

The High Court at Calcutta Single Bench of Justice Rai Chattopadhyay dismissed a writ petition challenging the imposition of penal charges by a statutory authority on a cooperative housing society. The Court held that the respondent authority, while functioning under a non-statutory lease agreement, was within its administrative prerogative to impose penal charges for the delayed construction of a housing project. The Court directed that the petitioners are not entitled to any relief and upheld the impugned demand order dated December 15, 2015. Stating the limited scope of judicial review in matters arising from non-statutory contractual obligations, the Court declined to interfere with the authority's administrative policy decision, stating that it was not arbitrary, unfair, or unreasonable. Consequently, the writ petition was dismissed.

The petition arose from a demand letter dated December 15, 2015, issued by the Assistant Controller of Finance & Accounts, Estate (M&M) Unit, Kolkata Metropolitan Development Authority (KMDA), seeking payment of Rs. 42,94,981/- from the petitioner cooperative housing society. The sum was claimed on account of penal charges for delay in the completion of a building construction project, along with applicable service tax.

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The petitioners included a registered cooperative housing society and its chairperson. The society had applied for land allocation under a scheme announced by KMDA in December 1997. Through a letter dated September 14, 1998, KMDA allotted a plot of land measuring approximately 6.17 cottahs at Baishanabghata-Patuli Township under its Area Development Group Housing Scheme Phase-II, priced at Rs. 80,000/- per cottah. The society took possession of the plot on April 24, 2000, following payment of the full consideration amount.’

A lease agreement between the petitioners and KMDA was executed on August 21, 2000. On January 4, 2010, the petitioners submitted a representation requesting mutation of the land and a "No Objection Certificate" (NOC) to facilitate building plan approval. By letters dated January 14, 2010, and May 31, 2010, KMDA instructed the municipal corporation to mutate the land in the petitioner’s name. The land was officially mutated on August 16, 2010.

Subsequently, the building plan was submitted on February 19, 2011, and sanctioned on April 19, 2011. The construction concluded with the issuance of a completion certificate on March 4, 2014. In response, KMDA issued a letter on November 11, 2014, requiring the petitioners to submit an undertaking on non-judicial stamp paper agreeing to pay penal charges for delayed construction. The petitioners denied the requirement to submit such an undertaking and claimed no prior knowledge of any relevant correspondence.

Following a series of exchanges, KMDA rejected the petitioners’ request for waiver of the penalty via letter dated August 19, 2015, warning of cancellation of allotment. Ultimately, the impugned demand notice was issued on December 15, 2015.

The petitioners, represented by senior counsel, argued that there was no contractual or statutory basis for the imposition of penalty. They contended that KMDA, as a statutory body, could act only within the bounds of statutory provisions and had exceeded its jurisdiction. It was argued that neither the advertisement nor the lease agreement contained provisions for such penal charges.

The petitioners further submitted that delays in construction were caused by procedural hurdles, particularly the delayed mutation of land and disputes with adjacent landowners. They stated that the building plan could not be submitted before mutation was completed and that these delays were beyond their control. The construction began immediately upon plan sanction and concluded with the issuance of the completion certificate in 2014.

The petitioners cited several judgments in support of their position, including the Single Bench decision in Siddhartha Co-operative Housing Society Limited vs The State of West Bengal & Others, arguing that statutory bodies lack authority to impose penalty absent legislative backing. They also relied on decisions such as Austin Distributors (P) Ltd. vs State of West Bengal, Giridharilal Soni vs Municipal Commission, Calcutta, and Asian Leathers Ltd. vs Kolkata Municipal Corporation to argue that statutory authorities cannot unilaterally alter lease terms or impose taxes or penalties.

KMDA contested the petition, primarily relying on clause 2(b)(iii) of the lease agreement dated August 21, 2000, which required the lessee to complete construction within three years of formal allotment or within an extended time period allowed by the authority. KMDA noted that the petitioners had failed to construct the building for over a decade and had applied for mutation only in 2010.

KMDA submitted that the lease also contained clause 4(i), allowing the authority to re-enter the premises and terminate the lease for non-compliance. Instead of exercising this right, KMDA imposed a penalty based on a policy decision ratified by its Pricing Committee. The penalty rate for cooperative societies was fixed at 8% per annum in its 173rd meeting held on June 1, 2013.

KMDA acknowledged that the lease agreement did not expressly provide for penalties but asserted that the policy decision, as an administrative measure, was valid and binding. Relying on Supreme Court judgements in Punjab State Power Corporation Ltd. vs Emta Coal Ltd. and Radhakrishna Agarwal vs State of Bihar, KMDA maintained that the matter involved contractual obligations not subject to judicial review under Article 226 absent statutory violations or arbitrariness.

KMDA argued that policy decisions are the prerogative of the administrative authority and not subject to judicial scrutiny unless they are manifestly arbitrary. It stated that administrative policies serve executive exigencies and do not require statutory sanction unless they infringe upon fundamental rights.

The Court noted that the primary issue was whether the imposition of the penalty was extra-contractual and altered the nature of the lease. The Court recorded that "the parties are acting within the realm of a non-statutory contract wherein; there has not been any public law element involved." The lease served only the petitioners and did not extend benefits to the public at large.

It observed: "An act of [the State], if not changes the very nature and purpose of the contract or have an effect of unilaterally change in the terms thereof, cannot be tested by the Court, in exercise of the power under Article 226 of the Constitution."

Citing Radhakrishna Agarwal, the Court held that "in case of an ordinary contractual relation between the parties, the terms of contract would govern their inter se rights and liabilities unless a statute specifically steps in." It held that the KMDA acted as a contracting party, not a statutory regulator.

The Court found that clause 2(I)(b) of the lease contemplated future charges that might be imposed by the authority, indicating that the price was not immutable. "Imposition of penalty does not appear to be something supplemented de-hors the scope of the contract."

Regarding the delay, the Court noted that petitioners took possession in 2000 but applied for mutation only in 2010. "The delay from the date of receipt of possession of the land... has remained unexplained." No extension of time was sought, and clause 4(i) permitted KMDA to terminate the lease for such violations. The Court recorded that instead of terminating the lease, KMDA chose to impose a penalty based on an internal policy decision.

On the argument that KMDA lacked statutory authority to impose penalties, the Court stated: "The petitioners may not be a party [to the administrative decision], and since such administrative decision of respondent is within the four corners of the agreement... would not be tainted with unreasonableness or arbitrariness."

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It also held that "consideration and response to any administrative exigency, is the duty of administrative body," and such actions were not always subject to statutory constraints. It cited Punjab State Power Corporation to affirm that administrative policy changes are permissible unless they are grossly arbitrary.

Finally, the Court concluded: "The writ petitioners cannot be allowed to doubly benefit to retain the land in spite of there being violation of stipulations in agreement... and not to be subjected to any consequences therefor."

The Court held that the petitioners were not entitled to relief in the form of setting aside the penalty imposed by KMDA. It stated: "On the discussion as made above, the Court is unable to find merit in this writ petition."

It further ordered:"Hence, WPA 1432 of 2016 is dismissed."

Advocates Representing the Parties:

For the Petitioners: Mr. Saptangsu Basu, Mr. Sumitava Chakraborty, Mr. Abhishek Mukherjee

For the Respondents: Mr. Satyajit Talukdar

Case Title: New Parijat Cooperative Housing Society Ltd. & Anr. Vs. Kolkata Metropolitan Development Authority & Ors.

Case Number: WPA 1432 of 2016

Bench: Justice Rai Chattopadhyay

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