Madhya Pradesh high court: Fee of panchayat under section 387 of municipal corporation act, 1956 can be determined by borrowing provisions of arbitration act, 1996

"Madhya Pradesh High Court: Panchayat fees under Municipal Corporation Act, 1956, can utilize provisions from the Arbitration Act, 1996, for determination."

Case Name: Indore Municipal Corporation and Ors. v. Mahendra Kumar Vijayvargiya and Ors.

Coram: Justice Subodh Abhyankar and Justice Alok Awasthi

Citation: (2026) ibclaw.in 6120 HC

Case No.: Writ Appeal No. 1908 of 2023 with Writ Appeal No. 1910 of 2023

Decided on: 07 October 2026

The High Court of Madhya Pradesh at Indore has held that where the Municipal Corporation Act, 1956 is silent on the fee payable to members of a Panchayat constituted under Section 387, the fee can be determined by applying the provisions of the Arbitration and Conciliation Act, 1996. The Division Bench dismissed the writ appeals filed by the Indore Municipal Corporation, with certain modifications.

The Bench, in an order authored by Justice Subodh Abhyankar, also clarified that an officer of the Indore Development Authority acting as a Panch is not entitled to any fee.

Background

Following a demolition carried out by the Indore Municipal Corporation, Respondent No. 1 approached the District Court under Section 387 of the Act of 1956 claiming compensation. By order dated 15 December 2022, the XVI District Judge, Indore constituted a Panchayat of two members, being an Assistant Engineer of the Indore Development Authority and a person proposed by the claimant, and directed them to appoint an Umpire (Sarpanch). A retired District Judge was appointed as Umpire. The claimant submitted a claim of Rs. 30,46,200.

By order dated 26 May 2023, the three member Panchayat fixed its fee under the provisions of the Act of 1996 and directed the Corporation and the claimant to bear it equally. Of the fee, 30% each was to go to the two Panchas and 40% to the Umpire. The parties were directed to deposit Rs. 80,000 as the first installment, Rs. 80,000 as the second installment after completion of evidence, and the remaining amount at the time of final arguments.

The Corporation challenged this order in writ petitions, which were dismissed on 10 October 2023. The present appeals arose from that order.

Contentions

The appellants argued that the Writ Court erred in invoking the Fourth Schedule of the Act of 1996 in the absence of any provision in the Act of 1956. They submitted that the fee was fixed arbitrarily on the basis of an exorbitant claim, that the claimant alone had invoked Section 387 and should bear the expenses, and that a civil suit claiming ownership of the house was already pending, so no fee could have been granted.

The respondent submitted that, in the absence of any provision on fees in the Act of 1956, the Writ Court rightly held that the provisions of the Act of 1996 could be borrowed. In the alternative, the respondent stated that he was ready to pay the amount required to be paid by the appellants so that the proceedings could continue.

Court’s Analysis

The Bench first reproduced Section 387 of the Act of 1956, which provides for determination of compensation by a Panchayat of three persons, one appointed by the Corporation, one by the other party and a Sarpanch selected by the two. It then turned to Section 2(4) of the Act of 1996, which applies Part I of that Act to every arbitration under any other enactment as if the arbitration were pursuant to an arbitration agreement and the other enactment were an arbitration agreement, except in so far as Part I is inconsistent with that enactment or its rules.

The Court observed that it was nobody’s case that any provision of the Act of 1956 was inconsistent with Part I of the Act of 1996. It therefore held that the fee prescribed under Section 11(3A) of the Act of 1996 would also be applicable. The Bench found no illegality or error in the Writ Court holding that the provisions of the Act of 1996 can be borrowed to determine the fee of the arbitrators.

On the contention that the claim was exorbitant, the Court held that the issue can be taken care of by the arbitral tribunal as provided under Section 31A of the Act of 1996.

Decision

The Court added a modification. An officer of the Indore Development Authority who is acting as a Panch would not be entitled to receive any remuneration or fee, and the amount of fees to be paid by the parties in respect of that officer shall be deposited in the account of the Indore Development Authority.