MCD can levy conversion charges for commercial use of industrial plots: Delhi High Court

The Delhi High Court recently upheld the jurisdiction of the Municipal Corporation of Delhi (MCD) to issue show cause notices and demand conversion charges from industrial plot owners who are using their premises for commercial purposes such as banquet halls or office spaces [Delhi Factory Owners’ Federation v. South Delhi Municipal Corporation]. .Justice Purushaindra Kumar Kaurav delivered the judgment on July 4 in a batch of petitions challenging the show cause notices issued by MCD.“The jurisdictional challenge to the impugned show cause notices stands failed. The issuance of show cause notices by the MCD seeking to levy conversion charges for commercial use of industrial plots is not an action bereft of jurisdiction," the Court ruled..The petitions were filed by factory owners, IT/ITES companies and banquet halls operating in industrial areas across Delhi. They challenged notices issued by the MCD which sought conversion charges for alleged misuse of industrial plots for commercial purposes.The petitioners argued that after the enactment of the Delhi Industrial Development, Operation and Management Act, 2010 (DIDOMA Act), it was the Delhi State Industrial and Infrastructure Development Corporation (DSIIDC) and not the MCD that had the authority to levy such charges.It was submitted that the DSIIDC was entrusted with the management of Delhi’s industrial areas and was empowered under Sections 5, 6 and 8 of the DIDOMA Act to collect development and service charges. The petitioners also pointed to a joint DDA–DSIIDC meeting and counter affidavits suggesting that DDA had transferred such powers to DSIIDC.Several petitioners including those engaged in IT-enabled services and Knowledge-Based Industries argued that their activities constituted industrial use and should not attract any conversion levy..Senior Advocate Sanjay Poddar, appearing for the MCD, argued that DSIIDC was a company registered under the Companies Act and not a statutory municipal authority. He contended that conversion charges could be levied only by the local municipal authority as per the Delhi Municipal Corporation Act of 1957 and the Master Plan for Delhi (MPD) 2021.The MCD relied on Clause 7.8 of MPD 2021 and DDA’s 2018 notification, which authorised local bodies to collect such charges in industrial areas not specifically listed by DDA.The MCD further pointed out that DIDOMA does not empower DSIIDC to regularise unauthorised commercial use through payment of conversion charges and Section 18 of the Act provides only for penalties..The Court rejected the petitioners’ arguments.“A holistic reading of the entire statutory framework of the DIDOMA Act reveals that no provision empowers the DSIIDC to levy conversion charges,” it held.It also observed that any arrangement between DSIIDC and DDA could not override statutory provisions.“When the DIDOMA Act, as well as the consequent rules, do not lay down any legislative mandate for levying conversion charges by the DSIIDC, then, by virtue of an understanding, it cannot be said that the power to levy conversion charges stood transferred to DSIIDC.”The Court further clarified that MPD 2021 has statutory force and explicitly authorises levy of conversion charges for non-industrial use of industrial plots.In view of these findings, the Court held that the MCD had the jurisdiction to issue the show cause notices..On the issue of whether IT/ITES services fall within industrial use, the Court referred to its earlier ruling in SDMC v. Moon Steel & General Industries Ltd, wherein it had held that activities involving systematic transformation of data or digital content into intellectual property could constitute industrial use.The Court directed the MCD to keep this in mind while evaluating such claims on a case-by-case basis..In view of the above, the Court directed the petitioners to file revised responses to the show cause notices within two months.MCD should pass speaking orders on the notices within four months after giving the petitioners an opportunity of hearing, the single-judge ordered.Interim orders in force since 2016 will continue till final orders are passed, the Court clarified..Senior Advocate Dayan Krishnan and Jayant Mehta appeared for the petitioners. .Advocates Vivek Goyal, Gokul Sharma, Mukesh Gupta, Sachin Singh Shahi, Shashi Gupta, S Sharma and Arnav Gupta represented the respondents. .[Read Judgment]