MUNICIPAL CORPORATION OF GREATER BOMBAYversusNEW STANDARD ENGINEERING CO. LTD.

        MUNICIPAL CORPORATION OF GREATER BOMBAY
A
                           v.
           NEW STANDARD ENGINEERING CO. LTD.

                               DECEMBE.R 7, 1990

B          [K. JAGANNATHA SHETTY, A.M. AHMADI AND
                        R.M. SAHAI, JJ.]

          Bombay Municipal Corporation Act, 1888:. Property Tax.

          Section 154--Property tax-Rateable value of Respondent's
C building-How to be determined-Whether it is to be determined under
    sub-section ( 1) or sub...section (3) of Section 154.

        Section 154--Explanation to Section 154(3)-"Recognised
  scheme of subsidised housing for industrial workers or persons belong-
  ing to lower income groups or poorer classes"-Consultation with
D corporation-Effect of non-observance of statutory prescription of
  con.sultation-Held prior consultation mandatory.

          The Respondent Company an industrial concern constructed a
    building to provide housing accomodation for its workers under the
    Government Subsidised Scheme for Industrial Workers after obtaining
E   a certain amount of subsidy and loan from the Government under an
    agreement dated 12.11.1959. Clause 5 of the agreement required the
    Respondent Compnay to adhere to all the terms, conditions and stipula-
    tions as in force at the date of 'Government of India Subsidised Housing
    Scheme for Industrial Workers' Clause 8 of the agreement imposed
    limitation on the company not to charge rent exceeding Rs.26.50 per
F   month per tenement inclusive of municipal rates and taxes.

        For the purpose of charging property tax on the Company's said
  building, the Municipal Corporation made the assessment under sub-
  section (1) of Section 154 of the Act. In making the assessment the
  annual letting value was rIXed at an amount higher than the actual rent
G charged for each tenement. The Company objected to the assessment
  raising the plan that the building bas been constructed under the recog-
  nised Government subsidised housing scheme for industrial workers
  and it is restrained from charging rent exceeding Rs.26.50 per month
  from each allottee. Therefore the Rateable Value should be fixed under
  sub-section (3) and not under sob-section (1) of Section 154. The Corpo-
H ration rejected the contentions of the Company. Appeal preferred by

                                         478
                    MUNICIPAL CORPORATION v.. ENGG. CO.                    479

     the Repondent-Company to the Small Causes Court was uosuccesful.
     On further appeal the High Court upheld the Respondent's claim and · A
     directed the Municipal Corporation to revise the Rateable Value taking
     into account onl:y the actual rentals recoverable by the Respondent from .
     each tenant which would be the Standard Rent for each of the !JIQCks. On
     the crucial point of prior consultation, the High Court held that the
     same is more or less directive in nature and not to be regarded as B
     mandatory and therefore the omission on the part of the Government to
     consult the Corporation cannot take the case out of the Explanation to
     sub-section (3) of Section 154 of the Act and the Corporation would not
     be at liberty to take the Rateable Value more than the actual rentals
     charged. The Corporation bas appealed to this court challenging the
     correctness of the decision of the High Court. Allowing the appeal,
     setting aside the judgment of the High Court and restoring that of the C
     Small Causes Court, this Court,

           HELD: Procedural safeguards which are so often imposed for the
     benefit of persons affected by the exercise of administrative powers, are
     normally regarded as mandatory, so that it is fatal to disregard them.       D
     Where there is a statutory duty to consult persons affected, this must
     genuinely be done and reasonable OPJIOrlunilL_for CO!Dment must be
     given. If the exercise of power is likely to impair the proprietary or
     financial interests of named bodies to be consulted, then generally the
     provision requiring consultation. before the statutory power is exercised
     is construed as mandatory. [485G-H, 484H-485A]                               E


            There must he opportunity for the Corporation to express its
     views on the recognised scheme and the terms thereof. The opinion
     expressed by it may not be binding on the Government which may take
,.   its own decision but nevertheless consultation with the Corporation
     must be there on the essential points- and the core of the subject           F
     involved. If there is no such constiltation · the Corporation cannot be
     compelled to rix the rateable value of the building under sub-section (3).
     The High Court seems to have· erred in this regard. The right to be
     consulted in opposition io a claim or proposal which will adversely
     affect its financial interests is to be regarded as mandatory. [486F-G, E]
                                                                                  G
           Banwarilal Agarwal/av. State of Bihar & Ors., [1962] 1 SCR 33;
     Kali Pada Chowdhury v. Union of India, [1963] 2 SCR904; Naraynan
     Sankaran. Mooss v. The State of Kera/a & Anr., [1974] l SCC 68;
     Naraindas Indurkhya v. State of M.P., [1974] 4 SCC 788 and
     Agricultural, Horticultural and forestry Industry Training Board v. Ayles-       \
                                                                                  H
    480         SUPREME COURT REPORTS               [1990] Supp. 3 S.C.R.

A bury Mushrooms Ltd., [1972] l WLR 190, followed.

    BOOKS CITED

          Administrative Law by H.R.R. Wade, 6th Ed. p. 247; De Smith's
    Judicial Review of Administrative Action, 4th Edition, pp. 144-45.
B
        CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 501·
    502of 1977.

         From the Judgment and Order dated 28.9.1973 of the Bombay
    High Court in Appeal No. 111of1967.
c        Narayana B. Shetye, R.F. Nariman and S. Sukumaran for the             r
                                                                               '
    appellant.

         R.B. Datar, S. Thananjayan and K.R. Choudhary for the
    respondent.
D
          The Judgment of the Court was delivered by

          K. JAGANNATHA SHETIY, J. The essential question raised
    by these appeals relates to the determination of rateable value of the
    respondent's building; whether it is to be determined under sub-
E   section (1) or under sub-section (3) of Section 154 of the Bombay
    Municipal Corporation Act, 1888 ("Act").

          The facts giving rise to these appeals briefly are as follows: The
    respondents-Mis New Standard Engineering Co. Ltd. is an industrial
    concern. It has constructed a building for providing housing accommo-
F   dation for its labourers under a Scheme known as the "Government
    Subsidised Scheme for Industrial Workers". Under the Scheme, the
    respondent has obtained certain amount by way of subsidy together
    with a loan advanced by the Government. The subsidy and loan were
    advanced under an agreement dated 12 November 1959 entered into
    between the Government and the respondent. The agreement inter
G   alia, provides that the Government being satisfied that the proposed
    construction would be helpful in implementing the Government's
    scheme for giving an impetus to industrial housing with a view to
    relieving the acute shortage of houses intended for industrial workers,
    has agreed to grant a subsidy not exceeding a sum of Rs.75,400 and a
    loan not exceeding a sum of Rs.1,50,000. Clause 5 of the agreement
H   requires the respondent to observe and perform all the terms, condi-
                MUNICIPAL CORPORATION v. ENGG. CO. [SHETfY, J.]            4;81

        tions and stipulations as in force at the date of 'Government of India
        Subsidised Housing Scheme for Industrial Workers' including the           A
        'Subsidised Housing Allotment Rules' contained therein. Clause 8 of
        the agreement reads as under:

                   "8. The rent which the loanee shall charge to the allottee
                   for the occupation of one tenement shall not exceed            B
                   Rs.26.50 per month, such monthly rent being inclusive of
                   municipal rates and taxes."

    j         For the purpose of payment of property tax the Corporation
        fixed the rateable value of the building by a special notice No. 528 of
j       1959-60 dated 17 March 1960 issued under sub-section (2) of Section
        162 of the Act at Rs.33, 155 and by a special notice No. G-558 of         c
J       1962-63 dated 18 March 1963 at Rs.33,495. Apparently the annual
        letting value was fixed at an amount higher than the actual rent
        charged for each of the tenements. It was indeed determined under
~
        sub-section (1) of Section 154 of the Act. It reads:
                                                                                 D
                   "154.(1) In order to fix the rateable value of any building
..,                or land assessable to a property tax, there shall be deducted
                   from the amount of the annual rent for which such land cir
                   building might reasonably be expected to let from year to
    .              year a sum equal to ten per centum of the said annual rent
                   and the said deduction shall be in lieu of all allowances for E
                   repairs or on any other account whatever."

              The respondent questioned the asssessment before the Investi-
        gating Officer of the Corporation. The case of the appellant has been
        that the building was erected under the recognised subsidised Housing
        Scheme for industrial workers, and under the scheme, they are F
        restrained from recovering the rent exceeding Rs.26.50 from each
        occupant. The rateable value of the building should, therefore; be
I       limited to the actual rentals recovered and not on any other basis. In
1
        other words, the plea put forward on behalf of the respondent is that
        the rateable value of the building should be fixed under sub-section (3)
        of Section 154 of the Act, and not under sub-section (1) thereof. The G
        Investigating Officer of the Corporation rejected the contentions. The
        appeal preferred by the respondent before the Chief Judge of the
        Small Causes Court, Bombay also became unsuccessful. Thereafter, the
        matter was taken up before the Bombay High Court which has allowed
        the respondent's claim. The High Court has direced the Corporation·
        to reassess the rateable value of the building taking into account only H
    482          SUPREME COURT REPORTS                  [1990] Supp. 3 S.C.R.

    the actual rentals recoverable from each of the tenants that is at
A   Rs.26.50 per month which would be the standard rent for each of the
    blocks.

         The Bombay Municipal Corporation by obtaining Special Leave
    has appealed to this Court challenging the correctness of the decision of
B   the High Court.

          It is common ground that the building has been constructed by
    the respondent as part of a Government Scheme of subsidised housing
    for industrial workers. The question however, is whether it was a
    recognised scheme as provided under sub-section (3)(b) of Section
    154. As the answer to the controversy ~entres round Section 154 sub-
c   section (3), it is useful to set out hereunder in so far as it is material for
    this enquiry. It reads:

                "154. Rateable value how to be determined:

D               xxxxx                         xxxxx                        xxxxx

                (3) Notwithstanding anything contained in this Section,
                the rateable value in the case of a building-

                xxxxx                         xxxxx                        xxxxx
E
                (b) constructed, purchased or occ:u_pied on or after the Isl
                day of April 1947 as part of a recognised scheme of sub-
                sidised housing for industrial workers or persons belonging
                to lower income groups or poorer classes; and

F               (c) comprising in part or in whole of tenements let oui to
                such workers or persons on a monthly rent, inclusive of all
                service and other charges not exceeding rupees thirty-two
                and fifty naye paise for each such tenement shall be fixed.:_

                xxxxx                         xxxxx                        xxxxx
G
                 Explanation: For the purpose of this sub-section "reco- ·
                 gnised scheme of subsidised ho.using for industrial workers
                 or persons belonging to lower income groups or poorer
                 classes" shall mean such scheme as may be recognised by
                 the State Government from time to time in this behalf,
H                after consultation with the Corporation."
        MUNICIPAL CORPORATION v. ENGG. CO. [SHETIY, J.]             483

      The recognised scheme of subsidised housing for industrial
                                                                           A
workers or persons belonging to lower income groups or poor classes
referred to in sub-section (3)(b) has been given a definite connotation
under the Explanation appended thereto. It means a scheme as may be
recognised by the State Government from time to time in this behalf
'after ·consultation with the Corporation'. The rateable value of build-
ing constructed, purchased or occupied on or after the first of April      B
1947 as part of such a scheme shall be determined only under sub-
section (3) and not by the usual rate prescribed under sub-section (1).
Under sub-section (3) there is limit.ation for fixing the rateable value
exceeding Rs.32.50 for each tenement.

      The High Court has found as a fact that in the instant case the
Government did not consult the Corporation before sanctioning the C
scheme pursuant to which the building in question was erected. The
correspondence disclosed no such consultation. The witness who step-
ped into the box for the Corporation before the learned Chief Judge of
the Small Causes Court made a categorical statement that there was nq
consultation with the Corporatjon. But the High Court did not attach D
importance to absence of consultation. It has observed that the omis-
sion to consult the Corporation makes little difference in the result and
it would not take the respondent's case out of sub-section (3) of section
154. It has expressed the view that the consultation referred to in the
Explanation is mcire or less directive in nature and it is not mandatory.
On this part of the judgment, the.High Court. then went-on:               E

           "We are not' oblivious to the fact that this safeguard is
           added because the Corporation is likely to suffer to some
           extent in its revenue in a given case, but may it be noted
           here that the plans were got sanctioned before they were
           presented to the Government for getting the subsidy and f
           the work Iiad already started and it was almost complete.
           When the Government entered into. the agre.ement refer-
           red to above it will have to be presumed that it had taken a
           judicial note of the rates likely to be charged by the Corpo-
           ration or the loss, if any, it was likely to suffer. Having
           considered all the aspects, it has sanctioned the scheme. G
           Moreover, from the language of the section if seems to us
           that what is· emphasised is the sanctioning of the scheme
           and not the consultation with the Corporation. From this
           point of view, we feel that the omission on the part of the
           Government to consult the Corporation cannot take the
           case out of the explanation recognised by sub-section 3 of H
    484         SUPREME COURT REPORTS              [1990] Supp. 3 S.C.R.

               Section 154 of the Act and the Corporation would not be at
A              liberty to take the rateable value more than the actual
               rentals charged for such tenements."

        The High Court has also dealt with the terms of the agreement
  and clause (8) in particular, imposing limitation on the respondent not
B to charge anything more than Rs.26.50 per tenement. Reference has
  also been made to the restrictions under the Bombay Rent Control Act
  against raising the standard rent and the intention of the legislature in
  giving the facilities of subsidy and loan under the Industries (Develop-
  ment and Regulation) Act, 1951. It was inter a/ia, observed that the
  benefits of subsidy and loan are extended in the larger interests of the
  society and the nation and also to promote industries. The Govern-
( ment in its wisdom while making concessions in favour of Industrialists
  has put certain restrictions and they are not pointed out to be
  unreasonable or discriminatory. The restrictions in respect of rent can-
  not be whittled down by allowing the Corporation to choose its own
  mode or method of assessing the rateable value fixed on the theory of a
D hypothetical tenant.

        These are the wide ranging discussion in the judgment of the
  High Court, the most of which, with all respect, are not well deserving
  and indeed not relevant to the issue in dispute. The only question that
  arises for consideration is about the effect of non-observance of the
E statutory prescription of consultation with the Corporation on the
  applicability of sub-section (3) of Section 154. Before us there is no
  disagreement on the finding recorded by the High Court that there was
  no consultation with the Corporation in respect of the Scheme in ques-
  tion. Indeed, both Counsel proceeded on the basis of the finding
  recorded by the High Court that there was no consultation.
F
        In the absence of the legislation making it plain what the conse-
  quences of failure to observe the statutory requirement, the Court
  must determine the question. It is a question of construction to be
  settled by looking at the scope and purpose of the enactment and by
  examining the relation of that provision to the object sought to be
G secured by such requirement. Particular regard may be had to its
  significance, whether it was intended to ascertain the views of indi-
  viduals or corporate bodies and if so for what purpose. The practical
  effects of the exercise of power upon the rights of persons or
  authorities to be consulted, are more relevant for consideration and
  they often determine the nature of the requirement. If the exercise of
H power is likely to impair the proprietary or financial interests of named
         MUNICIPAL CORPORATION v. ENGG. CO. [SHEITY, J.]                   485

bodies to be consulted, then generally the provision requiring consul-             A
tation before the statutory power is exercised is construed as manda-
tory (See: De Smith's Judicial Review of Administrative Action, 4th
Edition, pp. 144-145).

      In Banwarilal Agarwalla v. State of Bihar & Ors., [1962] 1 SCR
                                                                                   B
33 the question arose whether Section 59(3) of the Mines Act 1952
requiring the Central Government to consult every Mining Board
before framing regulations was mandatory. The Court held that since
the regulations framed would impinge heavily on the actual working of
mines, the requirement of consultation of the Mining Boards is man-
datory. This view has been affirmed in Kali Pada Chowdhury v. Union
of India, [1963] 2 SCR 904. In Narayanan Sankaran Mooss v. The State               c
of Kera/a & Anr., [1974] 1SCC68 the provision regarding consultation
with the State Electricity Board in Section 4 of the Electricity Act,
1910 as amended in 1950 for exercising the power of revoking a licence
by the State Government is held to be mandatory since it was intended
to provide additional safeguard to the licence. In Naraindas Indurkhya
v. State of M.P., [1974] 4 SCC 788 the prior consultation with the                 D
Education Board under Section 4(1) of the M.P. Act 13 of 1973 for
prescription of text-books by the State Government is also held to be
mandatory since it is a condition for the exercise of the power. In Agri
cultural, Horticultural and forestrylndustry Training Board v. Ayles-
bury Mushrooms Ltd., [1972] 1 WLR 190 the Minister was required
before making an industrial training order, to have prior consultations with the   E
interested Associations under Section 2(4) of the Industrial Training
Act, 1964. The Minister invited numerous organisations to consult
with him about an order for the agricultural industries, but in one of the
cases, the letter miscarried so that the Mushroom Growers' Associa-
tion was not consulted. Members of the Association, it was held were
not bound by the order of the Minister since a mandatory requirement               F
had not been observed.

      Prof Wade points out:

      "Procedural safeguards which are so often imposed for the
benefit of persons affected by the exercise of administrative powers,              G
are normally regarded as mandatory, so that it is fatal to disregard
them. Where there is a statutory duty to consult persons affected, this
must genuinely be done, and reasonable opportunity for comment
must be given" (Administrative Law by H.W.R. Wade 6th Ed.
p. 247).
                                                                                   H
    486          SUP!lEME COURT REPORTS              [1990] Supp. 3 S.C.R.

A          In the instant case, the Corporation has numerous obligatory
    functions to perform, namely drains and drainage works, scavenging
    and removal and disposal of refuse and rubbish, construction and
    maintenance of putllic streets, bridges culverts, of works and means
    for providing water supply, electricity, maintenance of fire brigade,
    measures for preventing and checking the spread of dangerous
B
    diseases etc. (See Section 61 of the Act). All these measures require
    funds. The property tax appears to be the major source of Corporation
    revenue. Consultation as envisaged under the Explanation is therefore
    definitely a matter--0f importance and consequence to the Coporation.
    Its right to recover normal rates of property tax would be deprived of if
    the Government prepares a scheme for subsidised housing without its
c   consultation. Section 154 provides for fixing the rateable value of the
    building for the purpose of levying property tax. Sub-sec. (1) provides
    a ge'neral principle for fixing the rateable value. Sub-section (3) is an
    exception to that principle and it is required to be followed in c-ertain
    specified categories. The Corporation is bound to follow the exception
    provided under sub-section (3) if the building has been erected as- part
D   of a recognised scheme of subsidised housing for industrial workers. In
    such a case, the rateable value shall not exceed Rs.32.50 for each such
    tenement inc1usive of all service and other charges. That would affect
    the financial interests of the Corporation. Even according to the High
    Court the consultation referred to in the Explanation is a safeguard
    added in favour of the Corporation because the Corporation is likely
E   to suffer to some extent its revenue in a given case. But nevertheless it
    was held that the consultation is directory and not to be regarded as
    mandatory. The High Court seems to have erred in this regard. The
    right to be consulted in opposition to a claim or proposal which will
    adversely affect its financial interests is to be regarded as mandatory.
F         There must be opportunity for the Corporation to express its
    views on the recognised scheme and the terms thereof. The opinion
    expressed by the Corporation may not be binding on the Government
    to take decision. The Government may take its own decision but con-
    sultation with the Corporation must be there on the essential points
    and the core of the subject involved. The consultation must enable the
G   Corporation to consider the pros and cons of the question as to the
    concessional rate of property tax. (See: (i) Fletcher v. Minister of Town
    Planning, [1947] 2 All E.R. 496, (ii) R. Pushpam and Anr. v. The State
    of Madras, AIR 1953 Mad. 392. If there is no such consultation the
    Corporation cannot be compelled to fix the rateable value of the build-
    ing under sub-section (3).
H
         MUNICIPAL CORPORATION v. ENGG. CO. [SHETIY, J.l           487

      Finally, we should refer briefly to one other reasoning adopted A
by the High Court. The High Court has stated that since the building
plans were approved by the Corporation and the construction work
was almost complete before the respondent approached the Govern-
ment for subsidy, it will have to be presumed that the Government had
taken judicial note of the rates likely to be charged by the Corporation
                                                                         B
or the loss, if any, it was likely to suffer. This assumption is wholly
unjustified. No such inference could be possible from the Corporation
license for building construction. Such license has nothing to do with
the property tax to be levied. Our attention has not been drawn to any
other material on which the Government could have taken note of the .
rates likely to be charged by the Corporation or the loss that it might
suffer in recovering the property tax on the basis of .rentals of each c
tenement at Rs.26.50. We are, therefore, not impressed with the con-
clusion reached by the High Court.

     The appeal is accordingly allowed, setting aside the judgment of
the High Court and restoring that of Chief Judge of the Small Causes
Court, Bombay.                                                           D

     In the circumstances of the case, we make no order as to costs.

R.N.J.                                                Appeal allowed.