HC strikes down BMC’s demand of penalty for regularisation in Kamla Industrial Park

The Bombay High Court has criticized the Brihanmumbai Municipal Corporation (BMC) for demanding a penalty of ₹22.80 crore ($3.1 million) from the owners of Kamla Industrial Park for unauthorized constructions made by the developer. The court struck down the BMC's demand, stating that the municipal body cannot benefit from its own inaction. The court also accepted the owners' argument that the claim for penalty should have been made before the National Company Law Tribunal.

The Bombay high court has pulled up the Brihanmumbai Municipal Corporation (BMC) for demanding ₹22.80 crore in penalty from industrial and commercial tenement owners of Kamla Industrial Park at Charkop in Kandivali for regularising the unauthorised constructions made by the developer.

Mumbai, India - Oct. 17, 2023: A view of the Kamla Industrial Park at Charkop, Kandivali West in Mumbai, India, on Tuesday, October 17, 2023. (Photo by Satish Bate/ Hindustan Times) (Hindustan Times)

“It is inconceivable and patently inequitable that municipal inaction can result in some form of recovery or reward to the corporation by collection of penalty,” a division bench of justice Gautam Patel and justice Kamal Khata said and struck down BMC’s demand of penalty.

The order on a petition filed by Kamla Industrial Park Limited (KIPL), a company formed by the tenement owners, was passed on September 29. It was made available on Tuesday.

According to the petitioner, the original property was owned by Metallica Industries Limited. It had appointed Kamla Group, which was owned by Jitendra Jain, to develop the property and the work began in 2008. Though BMC had granted commencement certificate for ground-plus-five floors, the developer constructed ground-plus-eight floors and in 2010 and 2011 sold off all the 374 industrial and commercial tenements to buyers, the plea said.

On noticing that the construction had proceeded beyond the permissible limit, BMC on September 7, 2013, issued a stop work notice. Jain was arrested and Metallica faced proceedings under the Insolvency and Bankruptcy Code, 2016. The petitioner said the tenement purchasers then formed KIPL, participated in the Corporate Insolvency Resolution Process (CIRP) before the National Company Law Tribunal (NClT), and took over the Metallica assets.

Last year, BMC sought ₹22.80 crore in penalty apart from premium and other charges from the tenement owners for regularising the three upper floors. Though KIPL was willing to pay the other fees it was opposed to the penalty, and hence, approached the high court.

The bench struck down the demand of penalty on grounds that the civic body could not be allowed to take benefit of its own inaction.

“One of the most distressing aspects of this case has been the conduct of MCGM (Municipal Corporation of Greater Mumbai) and its officers and how this has gone completely unexplained as if it is perfectly alright for municipal officers to stand by, watch illegalities being committed, do nothing at all to stop that although knowing that those illegalities will definitely affect third party purchasers and then to demand large amounts in penalty as if to suggest that payment to MCGM will wash away or efface all the sins of municipal inaction,” the court said.

The bench also accepted the tenement owners’ argument that the civic body should have pressed its claim for payment of penalty before NCLT and that the claim was “wiped out” after completion of CIRP, and therefore untenable.