SC Upholds BOT Bus Stand Tax Exemption, Reiterates Limits on Arbitral Appeals

The Supreme Court has refused to interfere with arbitral and High Court findings holding that a bus stand complex constructed under a Build-Operate-Transfer (BOT) concession agreement is exempt from municipal property tax, reiterating that courts exercising jurisdiction under Article 136 will not reopen concurrent findings of fact and law, particularly in arbitration matters.

The Court held that since ownership of both the land and the building vested with the municipal corporation under the concession agreement, the property squarely fell within the statutory exemption under the Kerala Municipality Act, 1994, leaving no scope for levy of property tax by the local body during the concession period.

A Bench comprising Justice Pankaj Mithal and Justice S.V.N. Bhatti dismissed the Special Leave Petition filed by Kannur Municipality, arising from a judgment of the Kerala High Court. While declining to interfere with the arbitral award and the judgments under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, the Court modified the award on interest, directing refund of the principal amount within six weeks without interest, failing which interest at 8% would apply for the delayed period.

The dispute arose from a Concession Agreement dated 27.10.2004, executed between the then Kannur Municipality and M/s K.K. Builders for construction, operation, and eventual transfer of a bus stand complex on a BOT basis. The concession period was fixed at 29 years and three months, during which the developer was entitled to operate the facility before handing it back to the municipal authority.

Following completion of construction and commencement of operations, the Municipality sought to levy property tax under Section 233 of the Kerala Municipality Act, 1994.

This move was resisted by the concessionaire on the ground that the land and the structure vested with the Municipality itself and therefore attracted exemption under Section 235 of the Act.

Invoking the arbitration clause contained in the concession agreement, the parties referred the dispute to arbitration. The Arbitral Tribunal, by an award dated 3.09.2012, accepted the concessionaire’s contention and held that the property was exempt from property tax.

The Tribunal found that the Municipality was the owner of both the land and the building and that the statutory scheme did not permit taxation of property owned by the local authority itself.

The Municipality challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, contending that the arbitrator had misapplied the statutory provisions and ignored the nature of the concession arrangement. The challenge was rejected. A further appeal under Section 37 also failed, with the High Court affirming the arbitral findings.

Aggrieved, the Municipality approached the Supreme Court by way of a Special Leave Petition, arguing that the arbitral award and the High Court judgments had wrongly curtailed the Municipality’s statutory power to levy property tax and that the concessionaire, as the entity in possession and commercial exploitation of the property, could not claim exemption.

After hearing Senior Advocate Chander Uday Singh for the Municipality and Senior Advocate Vinay Navare for the concessionaire, the Supreme Court noted that all three adjudicatory forums, the arbitrator, the Section 34 court, and the appellate court, had concurrently held that the property was exempt from tax.

The Bench observed that these findings were based on interpretation of the concession agreement and statutory provisions and involved no perversity or patent illegality warranting interference under Article 136 of the Constitution. The Court placed reliance on its recent decision in Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust, reiterating the limited scope of interference in arbitration matters where concurrent findings exist.

“In view of the aforesaid concurrent findings, there is hardly any scope for interference with the impugned Award and the Judgment and Orders passed by the Courts below,” the Court recorded, declining to entertain the Municipality’s plea on merits.

However, the Court examined the Municipality’s limited submission regarding interest at the rate of 15% awarded on the refund amount. Taking note of the fact that the liability to refund arose under the concession agreement and not from any deliberate or contumacious conduct, the Bench held that imposition of interest at 15% was not justified.

Accordingly, the Court directed that no interest shall be payable if the principal amount is refunded within six weeks from the date of the judgment. In the event of delay, interest at the rate of 8% would apply for the delayed period alone.

The Special Leave Petition was disposed of with these directions, and all pending applications were closed.

The judgment reinforces the principle that municipal authorities cannot levy property tax on assets that vest with them, even when such assets are operated by private entities under BOT or concession arrangements.

Case Title: Kannur Municipality v. M/s K.K. Builders

Bench: Justice Pankaj Mithal and Justice S.V.N. Bhatti

Date of Order: 03.02.2026