The Supreme Court refused to interfere with concurrent findings of the arbitral tribunal and High Court, holding that a BOT bus stand complex is exempt from municipal property tax. It ruled that ownership vested with the corporation under the concession, attracting statutory exemption.
NEW DELHI: The Supreme Court has declined to intervene in th e findings of the arbitral tribunal and the High Court, affirming that a bus stand complex constructed under a Build-Operate-Transfer (BOT) concession agreement is exempt from municipal property tax.
The Court reiterated that it will not revisit concurrent findings of fact and law, especially in arbitration cases. It held that since both the land and the building ownership rested with the municipal corporation under the concession agreement, the property clearly fell within the statutory exemption outlined in the Kerala Municipality Act, 1994, leaving no room for property tax imposition by the local authority during the concession period.
A bench consisting of Justice Pankaj Mithal and Justice S.V.N. Bhatti dismissed the Special Leave Petition filed by Kannur Municipality, stemming from a Kerala High Court judgment. While opting not to interfere with the arbitral award and the decisions made under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, the Court modified the award concerning interest, ordering the refund of the principal amount within six weeks without interest. If this timeline was not adhered to, an interest rate of 8% would apply for the delay.
The dispute originated from a Concession Agreement dated October 27, 2004, between the Kannur Municipality and M/s K.K. Builders for the construction, operation, and eventual transfer of a bus stand complex on a BOT basis. The concession period was set for 29 years and three months, during which the developer could operate the facility before returning it to the municipal authority. After the construction was completed and operations began, the Municipality attempted to levy property tax under Section 233 of the Kerala Municipality Act, 1994.
The concessionaire opposed this action, arguing that both the land and structure were owned by the Municipality, thereby qualifying for exemption under Section 235 of the Act. Citing the arbitration clause in the concession agreement, the parties took the dispute to arbitration. The Arbitral Tribunal, in its award dated September 3, 2012, sided with the concessionaire, concluding that the property was indeed exempt from property tax.
The Tribunal determined that the Municipality owned both the land and the building, noting that the statutory framework did not allow for taxing property owned by the local authority itself. The Municipality contested the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, claiming that the arbitrator misapplied legal provisions and overlooked the nature of the concession arrangement. This challenge was rejected. A subsequent appeal under Section 37 was also unsuccessful, as the High Court upheld the arbitral findings.
Dissatisfied, the Municipality approached the Supreme Court via a Special Leave Petition, arguing that the arbitral award and High Court rulings improperly limited its statutory authority to levy property tax and contended that the concessionaire, as the entity in possession and utilizing the property commercially, could not claim such an exemption.
After hearing Senior Advocate Chander Uday Singh for the Municipality and Senior Advocate Vinay Navare for the concessionaire, the Supreme Court noted that all three adjudicatory bodies the arbitrator, the Section 34 court, and the appellate court had unanimously concluded that the property was exempt from tax.
The Bench remarked that these findings were based on interpretations of the concession agreement and relevant statutory provisions, and there was no evidence of perversity or clear illegality that would justify interference under Article 136 of the Constitution.
The Court referred to its recent decision in Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust, reiterating the limited grounds for interference in arbitration cases when concurrent findings exist.
The Court stated, signaling its refusal to address the Municipality’s plea on the merits,
“In view of the aforesaid concurrent findings, there is hardly any scope for interference with the impugned Award and the Judgment and Orders passed by the Courts below,”
Nonetheless, the Court considered the Municipality’s limited argument regarding the 15% interest rate awarded on the refund amount. Acknowledging that the refund obligation stemmed from the concession agreement rather than any willful misconduct, the Bench concluded that a 15% interest rate was unwarranted.
Therefore, the Court directed that no interest would be applicable if the principal amount was refunded within six weeks from the judgment date. Should there be any delay, interest at a rate of 8% would be applied only for that period. The Special Leave Petition was resolved with these instructions, and all pending applications were closed.
This judgment reinforces the principle that municipal authorities cannot levy property tax on assets that belong to them, even when such assets are managed by private entities under BOT or concession arrangements.
Case Title: Kannur Municipality v. M/s K.K. Builders
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