The Karnataka High Court has held that owners of shopping malls who operate diesel generator (DG) in their premises cannot be mandated to renew trade licenses annually, observing that Section 354 State Municipal Corporations Act only contemplates a one-time “permission” to install machinery and not renewable “trade licence”.

For context, Section 354 requires prior permission to construct or establish a factory, workshop or workplace that uses steam, water, mechanical or electric power. It also applies to installing any machinery or manufacturing plant driven by these or other power sources.

A Division Bench comprising Justice Anu Sivaraman and Justice T.P. Vivekananda set aside a Single Judge's order that had upheld the demand of Bruhat Bengaluru Mahanagara Palike (BBMP) for annual renewal of trade license and allowed in part the writ appeal filed by Phoenix Market City mall's owner M/s Island Star Mall Developers Pvt. Ltd.

“The provision in Section 354(1) of the Karnataka Municipal Corporations Act being for a permission, it is clear that, all that is required is a permission and not a trade licence,” the Court said.

It held, “In the absence of any specific provision requiring renewal of a trade license for the installation of a diesel generator set every year, the finding of the learned Single Judge that the impugned notice issued by the respondent cannot be found fault with, is an incorrect proposition.”

The appellant, M/s Island Star Mall Developers, had obtained a power licence from BBMP in 2011 after paying Rs 10 Lakhs to install and operate a DG set. Subsequently, BBMP demanded periodic renewals of the license and levied penalty for non-compliance, under Section 354 of the Karnataka Municipal Corporations Act.

The appellant then filed a writ petition challenging the demand notice, which was dismissed by a Single Judge Bench. Aggrieved, the appellant approached the division bench in appeal.

No quid pro quo

The High Court observed that BBMP has not rendered any service or safety inspection in exchange for collecting license fee, as all the required inspections and certifications were done by the Electrical Inspector, the Karnataka State Pollution Control Board and the Fire department.

Noting that an element of quid pro quo must exist between the services rendered and the fee charged, so that the license fee matches the cost of rendering services, the Court said, “As observed above, there is no element of services rendered by the respondent while issuing power license, so as to demand huge sum of Rs.10,00,000/- that too in the year 2012-13 for mere issuance of license without there being any corresponding duties attached to it.”

The Bench said that while shopping malls and commercial complexes do not require trade license and only pay the annual property tax under the BBMP Act, the individual shops within such malls require a trade license from BBMP. The shopping malls install power generators to ensure uninterrupted power supply, the Court said.

It further held that if the DG set is installed and maintained by an entity other than the mall owner or occupier, then it amounts to a trade or business requiring a separate trade license.

“Therefore, the insistence of BBMP on the appellant to obtain the trade license, renewal of trade licence obtained annually by paying huge license fee cannot be sustained. If the diesel generator set is installed and maintained by the person/entity other than the owner/occupier of the mall, then it amounts to a Trade/business, which require a separate trade license. In the present case, the appellant itself is the owner of diesel generator set, it only maintaining the same,” the Court held.

The Court ruled that no annual renewal is mandated by law, however, the Bench declined the appellant's prayer for a refund of license fees already paid in previous years.

Case: ISLAND STAR MALL DEVELOPERS PVT. LTD. VS. BRUHAT BENGALURU MAHANAGARA PALIKE

WRIT APPEAL NO.882 OF 2022 (LB-BMP)

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