The Vijawada Municipality vs Lanka Rama Murthy

Jeevan Reddy, J.—These three appeals preferred by the Vijayawada Municipality against the judgments & decrees dismissing its suits on the ground of limitation, can be disposed of together. A.S. 44 of 1974 arises from O.S. No. 75/1969 which is a suit for recovery of a sum of Rs. 13,012/- from the defendant on account of the Public Health Establishment charges. The defendant was the contractor for the Municipal Markets for the year 1963-64. It is alleged that the defendant is liable to reimburse the Municipality for the expenditure incurred by it upon the Public Health Staff, for the said year, for purposes of the markets leased out to the defendant. A.S. No. 92/1974 and A.S. 1018/-1975 arise from two suits, O.S. 78/1969 and O.S. 76/1969 where under the Municipality sought to recover certain amounts due towards the monthly ''Kist'' payable by its lessees. The defendants in the said suits (who are common in both the suits) were the lessees of the Municipal markets for the years 1964-65 and 1965 66. Defendants in all the suits denied their liability to pay the said amounts. The trial Court, however, has found that the plaintiff is entitled to recover certain amounts from the defendants, though not in the sum claimed by the plaintiff. (The trial Court substantially reduced the claim of the plaintiff).

It however, dismissed the suits altogether on the ground that they are barred by limitation.

Two contentions are raised by Sri N.V.B. Sankara Rao, the learned counsel for the plaintiff (appellant), viz., (i) that, the suits are not barred by limitation and (ii) that, the trial Court erred in holding that the plaintiff is not entitled to the full amounts claimed by it in the suits. It is, however, clear that the second question would arise for consideration only if we agree with him on the first question. We shall, therefore, first examine the issue of limitation.

The present suits are instituted in 1969. It is admitted that the suits are instituted beyond a period of three years from the date on which the suit amounts fell due. They are, however, filed within six years of such date. Mr. Sankara Rao contends mat the suits filed within six years of the due date are within time by virtue of Section 365 of the Andhra Pradesh Municipalities Act, 1965 read with Rule 11 (2) in Schedule IX to the said Act. He further contends that the suit amounts can be said to be amounts due under the Act" by virtue of the above provisions and, therefore, the suits filed within six years are within time. On account of the above provisions, it is contended, the suits are not really for recovery of amounts due under a contract, out for recovery of amounts "due under the Act". It is conceded that if we hold that the suit amounts are due not under the Act but only under the contract, the suits would be barred by limitation.

For appreciating the contention of Sri Sankara Rao it is necessary to notice a law relevant provisions of the Andhra Pradesh Municipalities Act, 1965, as well as the Madras District Municipalities Act, 1920. Section 345 of the Madras Act provided, inter alia that no suit shall be instituted in respect of any sum due to the Municipal Council under the said Act (''under this Act'') alter the expiration of a period of three years from the date on which a suit might first have been instituted in respect of the said sum. The said Act was repealed by Section 391 of the Andhra Pradesh Municipalities Act, 1965 which came into force on 2-4-1965. Section 305 of the Andhra Pradesh Act corresponds to Section 345 of the Madras Act, but with a material difference, u/s 365 the period of three years fixed under the old Act is enlarged to six years. In other words, according to the new Act, an amount due under the Act can be recovered within six years from the date on which a suit might first have been instituted. The expression "the date on which a suit might first have been instituted" obviously means and refers to the date on which the cause of action arises for the institution of the Suit. The question that, therefore, arises is whether the amounts claimed in those suits can be said to be the amounts ''due under the Act''. The contention of the defendants--and which has been accepted by the Court below is that the said amounts cannot be so called and that, they are amounts due only under a contract entered into between the parties.

It is not in dispute that the lease of Municipal markets was granted by auction, which is conducted every year and that, the defendants were the highest bidders in the auctions for the respective years. Before holding an auction, the Municipality notifies the conditions of auction (which are, however, not statutory) and, after the conclusion of the auction, a lease deed is executed between the Municipality and the successful bidder. Clause 2 (3) of such contract makes the lessee liable to reimburse the Municipality for the expenditure it incurs on maintenance of Public Health staff for cleaning and maintaining the said markets. The said contract also makes the lessee liable for paying the ''kist'' amount on the 10th of each month. Now section 276 of the Andhra Pradesh Act vests all the markets in the Municipality and, u/s 277 the Municipality is entitled either to collect the prescribed fees from the users, through such person as may appear to it proper, or to farm it out on such conditions as it thinks appropriate. In other words, u/s 277 the Municipality may collect the fees in such markets either directly through its own officers, or it may lease out the said right of collection of fees by public auction. In this case, the Municipality has chosen the latter course, and the defendants in these suits were the successful bidders for the respective years. The lease-deed executed between the parties obliges the lessees, i.e., the successful bidders, to pay certain amounts in the specified manner. It is thus clear that the amounts which are now claimed from the defendants are the amounts due under the terms of and by virtue of the lease-deed executed between the parties They cannot be said to be amounts due under the provisions of the Act. The position, probably, may have been different if the Act directed the Municipality to farm out the said right by auction every year and also prescribed the conditions of such auction. The Act in question, however, merely empowers the Municipality either to farm out the said right by auction, or to collect it by itself. If it chooses to farm out, it is entitled to prescribe appropriate conditions of auction, which it thinks fit, in the circumstances. The auction conditions so prescribed by the Municipality are not statutory. No doubt, the conditions of auction so specified by the Municipality form part of, and are deemed to be incorporated in the lease-deed executed between the parties; yet, it does not follow that the amount due under the said contract can be said to be an amount ''due under the Act''. In other words the defendants are liable to pay the said amount not under any provision of law, but only by virtue of and under a contract entered into by them with the Municipality. We are fortified in our conclusion by two Bench decisions of the Madras High Court, which had occasion to construe identical provisions.

In Re: Punya Syamala) AIR 1924. Mad 669 is a case where the District Board leased out the right to collect tolls at a certain toll-gate for the financial year 1921-22. The lessee was to pay the amount due in certain instalments. He failed to do so, whereupon the district Board applied to the Town Sub-Magistrate to recover the amount due with interest from the lessee u/s 221 of the Madras Local Boards Act, 1920. Section 221 of the said Act provided that "in default of payment of any fee, toll, costs, compensation, damages, penalties, charges, expenses or other sums due to a Local Board, under or by virtue of this Act, the same may be recovered under the warrant of the Magistrate......". The Magistrate directed the recovery, but on revision, the Sessions Judge found that the amount sought to be recovered is not an amount due under or by virtue of the said Act and therefore, not recoverable u/s 221. The learned Sessions Judge, accordingly made a reference to the High Court, which agreed with his reasoning. It was observed by the High Court that "the sum in question here is not payable ''under or by virtue of this Act'' but is payable under the contract between the parties". Reference was then made to section 106 of that Act, which empowered the District Board to lease out the right to collect the tolls and on the basis of said provision it was contended that, the amount due from the lessee would also be an amount ''due under or by virtue of the said Act within the meaning of section 221. The contention was negatived by saying that "Section 106 has no bearing on this question; It merely authorises the leasing out of the tolls but does not make the money payable under the contract of lease, money payable under the Act...". It is apparent that Section 106 of the said Act corresponds to Section 227 of the Andhra Pradesh Municipalities Act. This decision was referred to with approval and followed in A. Kuppuswami Konar (since deceased) and Another Vs. The District Board of Tanjore,

It may be noticed that the words in Section 221 of the Madras Local Boards Act, 1920, used the expression "under, or by virtue of this Act", whereas the A.P. Municipalities Act uses the words "under this Act". It is obvious that the words used by the Madras Act are much wider than the words used by the Andhra Pradesh Act. It is, however, not necessary for us to express our opinion on the question whether, if the Andhra Pradesh Act also had used the very same expression, i.e., "under or by virtue of this Act", the suit amount would not have been recoverable within six years? Since the words actually used are "under this Act" which are of a narrower import we have no doubt that section 365 has no application.

In this connection, we must note that before the expiry of three years from the date on which the suit amounts fell due, the Madras District Municipalities Act was repealed and the Andhra Pradesh Municipalities Act, 1965 came into force, which provides for a larger period of limitation for filing suits for recovery of amounts due under the Act. The proposition that it is the new Act which would govern in case the amounts were held to be amounts "due under the Act" is not disputed.

Mr. Sankara Rao then relied upon Rule 11 (2) in Schedule IX to contend that the suit amounts, assuming that they are not amounts due under the Act within the meaning of Section 365 do become ''amounts due under the Act'' by virtue of the said Rule. Schedule IX contains transitional provisions and is relatable to Section 289 of the Act. Section 389 provides that "in regard to the first constitution of a council for any local area u/s 3, or to the first reconstitution in accordance with the provisions of this Act of a Council in existence at the commencement thereof, and otherwise in first giving effect to the provisions of this Act, this Act shall be read subject to the rules in Schedule IX......'',. Sub-Rules (1) and (2) of Rule 11, which are relevant for our purpose, read as follows:--

R. 11 (1): All property, all rights of whatever kind, used, enjoyed or possessed by, and all interests of whatever kind owned by or vested in or held in trust by or for, any council, as well as all liabilities legally subsisting against it, shall on and from the date of commencement of this Act and subject to such directions as the Government may, by general or special order, give in this behalf, pass to such council as shall be deemed to be constituted under this Act.

(2) All arrears of taxes or other payments by way of composition for a tax or due for expenses or compensation or otherwise due to a council at the commencement of this Act may be recovered as if they had accrued under this Act.....

A perusal of the above sub-rules makes it clear that while sub-rule (1) provides for devolution of all properties, rights and liabilities from the previous Council constituted under the o)d Act, to the Council constituted under the new Act, sub rule (2) provides for continuity of action in respect of arrears of taxes and other payments due to the previous Municipality. Obviously Section 389 and Schedule IX are intended to provide a continuity between the two Council''s and nothing more. However, Mr. Sankara Rao is emphasizing the language used in sub-rule (2) viz, that all payments due to the Council by way of composition for a tax or for expenses, or compensation, or otherwise can be recovered by the succeeding Council as if they had accrued under the 1965 Act. The contention, obviously is that even though a payment is not due under the Act but is due otherwise than under the Act even then by virtue of rule 11 (2) it becomes an amount due under the Act and can be recovered as such. It must be said that the language used in Rule 1 (2) is susceptible of the said interpretation but we are unable to give effect to the same. Accepting the said contention would amount to giving a meaning to Rule 11 (2) beyond what was contemplated by the Legislature and would invest the said sub-rule with a meaning far beyond its scope and context. We must have to read the said sub-rule in its appropriate context and having in view the avowed object of the said Schedule. The said sub rule was never intended to override or supplement Section 365. The said Schedule has a limited object of providing a devolution of the rights and liabilities, and to provide a continuity between the old Council and the new Council. The said Schedule comes into operation only on one occasion contemplated by Section 389. It is obvious that the Legislature never intended to convert the amounts due under the contracts entered into with the previous Council, into amounts due under the Act so that they can be recovered in accordance with the Act. Sub-rule (1) of Rule 11 provides for devolution of taxes and other payments due under the Act, and nothing more, we would, therefore, be justified in reading the words "otherwise due" occurring in sub-rule (2) as "otherwise due under the Act". We would require a clearer expression of Its intention from the Legislature if it really wanted to provide what is now contended by the learned Counsel for the appellant.

Mr. Sankara Rao then contended that a Bench of this Court, to which one of us (Jeevan Reddy J.) was a party, has held that the conditions of auction notified by the Municipality are statutory in nature and, for that reason, the amount due in accordance with the said conditions would equally be an amount "due under the Act". Reference is to decision in L.P.A. No. 192/1974, dated 4-3-1976. On a perusal of the said judgment, however, we are of the opinion that the learned Counsel is not right in his reading of the said judgment All that was stated in that judgment was that the conditions of auction were published in accordance with Section 329 of the Madras District Municipalities Act, which corresponds to S. 351 of A.P. Municipalities Act. The said provision merely provides for a mode of publication of the notifications or orders made by the Municipality. It is not something in the nature of rule-making power. All that was stated in the said judgment was that the conditions of auction prescribed by the Municipality (under Section 277) were published in accordance with Section 329; observations in the nature of obiter dicta do not constitute a decision. In fact, the Bench was not dealing with the nature of the said Rules, nor did either party to that appeal contended that the said Rule was statutory in nature. Section 277 makes it clear that it is for the Municipality to prescribe such conditions of auction as it thinks fit in the circumstances of the case. The conditions of auction are not prescribed by law, i.e. either by the Act or by way of Rules. For having statutory force, such conditions of auction must be provided either by the Act itself, or must have been made in exercise of the delegated legislative authority. In this case, it is neither.

For the above reasons, it must be held that the suit amounts were due only under the contract and not under the Act. The Municipality cannot therefore take advantage of Section 365 of the District Municipalities Act. The suits, are thus governed by the ordinary law of limitation which admittedly provides a three-year period of limitations for such suits, Accordingly, the suits must be held to be barred by limitation.

In view of the above finding, it is not necessary for us to consider the second contention of Sri Sankaro Rao and any such discussion would be purely academic. The appeals, accordingly fail and are dismissed but, in the circumstances of the case, we direct the parties to bear their own costs in these appeals.