The court upheld that withholding amounts without notice is unauthorized under the Kerala Municipality Act, and the appeal lacked a substantial question of law.

J U D G M E N T

This appeal is filed by the Pala Municipality, aggrieved by the concurrent findings rendered by the Sub Court, Pala, in a suit for recovery of money as O.S No.17/2020, as affirmed by the IV Additional District Court, Kottayam, in A.S No.85/2022.

2. The brief facts necessary for the disposal of the appeal are as follows:-

2.1 The respondent-company entered into an agreement of lease in respect of 55 rooms in a shopping complex owned by the Pala Municipality. The agreement was for five years ending in 2013. The plaintiff had made a deposit of an amount of Rs.77,00,250/- as room security deposit and an amount of Rs.6,42,836/- as advance licence fee. On 27.12.2016, the municipality terminated the agreement and the building in question was surrendered on 01.04.2017. In the meantime, on 07.02.2017, the Engineering, Revenue and the Health Department of the Municipality conducted an inspection of the building and submitted a report. Thereafter, on 19.06.2017, the Municipal Council in its meeting took a decision to realise a sum of Rs.8,20,000/- as compensation to the damage caused to the building on the basis of the report submitted by engineering section under the defendant. Pertinently, no notice of inspection was issued to the plaintiff, though the municipality has got a case that the inspection was conducted at the time when the agreement was in force. Be that as it may, based on the decision of the Municipal Council, the appellant decided to withhold an amount of Rs.6,37,470/- from the respondent towards the rent due till June 2017. The explanation caused to such retention is that going by the agreement and also the bye-laws of the Municipality on termination of lease, the Municipality should be in a position to tender the building in auction on the next day as it where, in a workable condition. Since there were considerable improvements made by the plaintiff and that the improvements were without the permission of the Municipality, the Municipality had incurred substantial amounts to make the building in a workable condition, so as to enable them to re-auction the same. Finding that the amounts were not paid despite demand, a notice under Section 544 (1) of the Kerala Municipality Act , 1994, was issued to the appellant on 18.03.2020. Thereafter, the suit was filed in the month of June 2020. The appellant entered appearance and contested the suit by contending that the plaintiff had no cause action against the Municipality and that the entire action was taken by the Municipality in accordance with the bye-laws of the Municipality as well as under the agreement. On behalf of the plaintiff, Exts.A1 to A28 documents were produced and PW1 was examined. On behalf of the defendant, Exts.B1 and B1(a) report of the Assistant Engineer and the Estimate were produced and DW1 was examined.

2.2. The trial court on appreciation of the oral and documentary evidence came into conclusion that inasmuch as the withholding of the amount on the basis of the alleged estimate prepared by the Assistant Engineer of the Municipality was without notice and without hearing the plaintiff, the Municipality could not have withheld the amount. Still further, it was found that once the agreement was terminated with effect from 01.04.2017, the Municipality cannot withhold the amount, towards the rent arrears till June 2017. Accordingly, the suit was decreed. Aggrieved, the Municipality preferred A.S No.85/2022, which was dismissed by the Additional District Court-IV, Kottayam, by judgment dated 13.08.2025 and hence the appeal. 3. Heard Shri.C.R.Syamkumar, the learned counsel appearing for the appellant and Shri.Georgekutty Mathew appearing for the respondent through caveat.

4. Shri.C