In a significant ruling on April 16, 2024, the High Court of Judicature at Bombay, presided over by Justice Sandeep V. Marne, addressed a long-standing dispute concerning the liability for substantial water charges and property taxes. The case, Nikhilesh Keshrichand Jhaveri & Others v/s M.S. Johnson Dye Works Pvt. Ltd. (JD) & Others, stemmed from complex tenancy arrangements and a considerable outstanding debt owed to the Municipal Corporation for Greater Mumbai (MCGM).

The Core of the Challenge: Arrears of Water Charges

The petitioners, Jhaveris, challenged a July 12, 2021, judgment from the Appellate Bench of the Small Causes Court at Mumbai. This earlier judgment upheld a July 15, 2015, order from the Small Causes Court, which directed the Jhaveris to deposit Rs. 5,85,80,203/- towards arrears of water charges under Order XV-A of the Code of Civil Procedure, 1908.

A Tangled Web of Tenancy and Dues:

The dispute's roots trace back to a 999-year lease deed from December 23, 1938, granted by the Barias to the Jhaveris. The Jhaveris claimed the right to sub-lease portions of the premises for up to one year without prior consent. They subsequently created a monthly tenancy with New Era Textiles Mills Pvt. Ltd. in 1968, which later transferred its assets to its sister concern, New Era Fabrics Ltd. (NEFL). The Jhaveris contended this transfer was unauthorized, leading to an eviction suit in 1968.

In 1977, consent terms were established, recognizing NEFL as a monthly tenant of the Jhaveris, with NEFL agreeing to pay all rates, taxes, and impositions related to the premises. Crucially, prior to 1980, NEFL directly secured four independent water connections from the MCGM and was responsible for their charges.

However, disputes over water charges arose between NEFL and MCGM in 1981, culminating in a warrant of attachment issued by MCGM on July 3, 2012, for unpaid water charges of Rs. 5,76,45,753/-, property tax dues, and warrant costs, totaling Rs. 5,85,80,203/-.

M/s. Johnson Dye Works Pvt. Ltd. (JD), which acquired the property from the Barias in 2009, filed an application (Exhibit 42) in their eviction suit against the Jhaveris, seeking a direction for the Jhaveris to deposit the outstanding amount.

The Legal Tug-of-War: "Water Tax" vs. "Water Charges"

A central point of contention was the distinction between "water tax" and "water charges". The Jhaveris, through their counsel Mr. Gautam Ankhad, argued they were not contractually or statutorily liable for the water charges, which were for actual consumption by NEFL, not a property tax. They highlighted NEFL's own acceptance of this liability, evidenced by NEFL's past litigation with MCGM. Furthermore, Mr. Ankhad emphasized that NEFL and JD were "group companies" controlled by the same family, suggesting collusion.

Conversely, Mr. M.P. Vashi, representing JD, contended that under the 1938 Lease Deed, the Jhaveris were responsible for all rates, taxes, charges, and outgoings. He argued that water taxes and charges formed part of the rent under the Maharashtra Rent Control Act, making the Jhaveris liable. Mr. Vashi also pointed to the Jhaveris' alleged illegal sub-letting to NEFL as a reason for their responsibility in clearing the dues.

The Court's Analysis and Decision:

The High Court focused on whether the Jhaveris could be compelled to deposit water charges under Order XV-A of the Code. The court examined the application filed by JD, noting that it did not initially invoke Order XV-A, but rather sought to avert the auction of the property.

The judgment underscored the distinction between "water tax," which is a property tax, and "water charges," which are for actual water consumption. The court observed that the primary liability for water charges, especially those incurred through direct connections by NEFL, rested with NEFL under Section 169(3) of the MMC Act. The court drew parallels with a Supreme Court judgment concerning electric charges, where variable consumption-based charges were not considered part of the rent.

Crucially, the High Court determined that the discretion conferred upon courts by the word "may" in Order XV-A of the Code should be exercised judiciously, especially when there are serious disputes about a tenant's liability or whether a levy constitutes part of the rent.

Furthermore, considering the water charges pertained to the period before JD acquired the property in 2009, the court questioned JD's entitlement to recover these arrears from the Jhaveris under Section 109 of the Transfer of Property Act.

Ultimately, the High Court concluded that the order directing the Jhaveris to deposit the water charges under Order XV-A was not justified. The court found that the Small Causes Court and its Appellate Bench had made manifest errors of law and fact, which necessitated intervention under Article 227 of the Constitution of India.

As a result, the Writ Petition filed by the Jhaveris succeeded. The orders dated July 15, 2015, and July 12, 2021, directing the deposit were set aside, and JD's application for the deposit was dismissed. This ruling clarifies the distinction between different municipal levies and emphasizes the careful exercise of judicial discretion in matters of rent and property dues.

Section 69, Indian Contract Act - 1872  

Indian Contract Act, 1872  

Section 109, Transfer of Property Act - 1882  

Transfer of Property Act, 1882