A) ABSTRACT / HEADNOTE

The dispute concerns a high-value allotment of land by HUDCO for construction of a 5-star hotel (subject property) pursuant to an Allotment Letter dated 31.10.1994. The appellant (highest bidder) paid the first instalment (40%) and maintenance corpus but refused further instalments on the ground that HUDCO had not procured statutorily required approvals nor executed the agreement to sub-lease (reciprocal obligations placed on HUDCO by clause 5). HUDCO insisted on further payments and ultimately cancelled the allotment (02.05.1996) and forfeited the payments.

Appellant litigated in two suits (First Suit in High Court with a conditional status-quo requiring deposit of Rs.15 crores; Second Suit in Civil Court seeking declaration and subsequently possession). Procedural contestations (withdrawal of First Suit, forum-shopping allegations, court-fee objections under Order VII r.11 CPC) complicated the litigation. Trial and first appellate courts found HUDCO guilty of breach and granted declaratory relief; the High Court reversed, holding the suit defective for not claiming consequential possession per proviso to Section 34, Specific Relief Act, and criticized appellant’s conduct.

The Supreme Court held that HUDCO was in breach of Clause 5(vi), 5(viii) and 5(ix) of the Allotment Letter (failure to obtain approvals under the Urban Land (Ceiling & Regulation) Act, 1976 and Chapter XX C, Income Tax Act and failure to execute sub-lease), and therefore liable to refund the forfeited amount. However, on equitable grounds and invoking the clean hands doctrine, the Court declined to award interest under Section 34, Code of Civil Procedure, 1908, observing appellant’s forum shopping, failure to comply with deposit directions and abandonment of possession claim to evade court fee.

Refund ordered of Rs. 28,11,31,939 (principal) without interest; 6% p.a. interest allowed only as penalty if HUDCO failed to refund within three months. The Court relied on Central Bank of India v. Ravindra & Ors. for discretionary interest principles.

Keywords: Breach of contract; Clause 5(vi); refund of forfeited amount; reciprocal obligations; Section 34 CPC; Specific Relief Act; clean hands; forum shopping; Urban Land (Ceiling & Regulation) Act, 1976; Income Tax Act (Chapter XX C).

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case arises from a competitive municipal/central government land-allotment process in 1994 for 71 acres at Andrew’s Ganj, New Delhi. HUDCO, acting on Ministry of Urban Development’s mandate, issued an Allotment Letter dated 31.10.1994 for a hotel site with payment schedule and explicit reciprocal obligations most pertinently Clause 5(vi) obliging HUDCO to obtain statutory approvals under the ULCR Act and Chapter XX C of the IT Act and to execute requisite documents, and Clauses 5(viii)/(ix) promising an Agreement to Sub-lease and possession upon fulfillment of conditions.

The appellant paid the first instalment (40% plus short-term contractual interest) and maintenance corpus, then resisted payment of subsequent instalments on the ground that HUDCO had not secured statutory clearances nor executed the sub-lease. HUDCO, although not then in receipt of a perpetual lease itself from the Ministry, pressed for further payments and threatened cancellation. The High Court in the First Suit passed a conditional status-quo requiring a Rs.15 crore deposit which the appellant failed to make; HUDCO cancelled the allotment (02.05.1996) and forfeited the sums.

HUDCO later disclosed in a fresh tender that a perpetual lease in its favour was yet to be executed; eventually the Ministry executed the perpetual lease only after cancellation (04.07.1997). Procedural manoeuvres followed: withdrawal of the First Suit, a Second Suit in Civil Court limited to a declaration (possession abandoned to avoid ad-valorem court fee), contested pleadings on court fee, and divergent outcomes in trial and appellate courts. The core contest before the Supreme Court was whether HUDCO breached the reciprocal obligations and thus forfeiture was impermissible, and if so whether equitable interest should follow.

D) FACTS OF THE CASE

The salient factual matrix is as follows: HUDCO offered the hotel site with defined payment tranches 40% within 4 weeks, 30% at one year, 30% at two years; car park payments separately scheduled. The Allotment Letter expressly linked HUDCO’s obligation to execute an Agreement to Sub-lease and hand over possession to the receipt of the first instalment and on HUDCO obtaining approvals under the ULCR Act and Chapter XX C of the IT Act (see Clause 5(vi), 5(viii), 5(ix)).

The appellant paid Rs.27.04 crores (first instalment) plus interest for delayed payment (total Rs.28,11,31,939). Correspondence in early-1995 records HUDCO’s repeated requests to the Ministry to execute a perpetual lease in HUDCO’s favour; those requests went unfulfilled through 1995–1996. The appellant refused further instalments asserting HUDCO had not performed its part. HUDCO required a Rs.15 crore deposit per a conditional status-quo order (31.01.1996) in the First Suit; appellant did not deposit.

HUDCO cancelled the allotment (02.05.1996) and forfeited payments. HUDCO then re-tendered the site disclosing absence of a perpetual lease; Leela Hotels subsequently became highest bidder. The appellant instituted the Second Suit claiming cancellation void and seeking possession; due to a court-fee objection, appellant abandoned possession relief and confined itself to declaratory relief.

Trial and first appellate courts found HUDCO guilty of breach and granted declaration; the High Court reversed on maintainability grounds (failure to claim consequential possession under the proviso to Section 34, SR Act) and criticized appellant’s conduct. Supreme Court examined contractual text, correspondence, and administrative records and reached the conclusions set out below.

E) LEGAL ISSUES RAISED

i. Whether HUDCO breached its reciprocal contractual obligations under the Allotment Letter, specifically Clause 5(vi), 5(viii), 5(ix), by failing to procure statutory approvals and execute the agreement to sub-lease?
ii. If breach is established, whether the appellant is entitled to refund of the forfeited amount under Clause 5(vi) of the Allotment Letter?
iii. Whether the appellant is entitled to interest on the refund either contractually or as discretionary relief under Section 34 CPC (post-decree/pendente lite)?

F) PETITIONER / APPELLANT’S ARGUMENTS

The appellant contended that HUDCO misrepresented material facts by not disclosing it lacked a perpetual lease and therefore could not execute the promised sub-lease; consequently the second and third instalments were not contractually due until HUDCO’s performance. Appellant relied on the textual obligation in Clause 5(vi) making HUDCO responsible for statutory approvals and on Clauses 5(viii)/(ix) promising sub-lease and possession upon approvals and receipt of the first instalment.

Appellant asserted discriminatory treatment compared with Ansal Properties (who received interest-free extensions) and relied on parity with Leela (which later secured refund/arbitral relief for similar non-disclosures). Appellant alternatively sought return of the forfeited sum with interest in equity.

G) RESPONDENT’S ARGUMENTS

HUDCO argued the appellant defaulted contractual payment obligations; Clause 5(iii) permitted forfeiture and cancellation for delayed payments independent of HUDCO’s other obligations. HUDCO invoked procedural bars (Order II r.2 CPC, Order XXIII r.1(3) CPC) given prior First Suit and withdrawal; it criticized forum shopping, non-compliance with the High Court deposit direction and abandonment of possession claim to avoid court fee facts which, HUDCO contended, disentitle equitable relief. HUDCO also distinguished Ansal’s case and asserted appellant failed to take steps to obtain statutory clearances.

H) JUDGEMENT

The Supreme Court undertook textual and factual analysis of the Allotment Letter and contemporaneous records. It held that Clause 5(vi) is mandatory: the clause imposes on HUDCO an obligation to execute all required documents to obtain approvals under the ULCR Act and Chapter XX C of the IT Act, and ties a refund obligation to failure in that duty. The Court reasoned that the refund provision would be meaningless unless the initial obligation on HUDCO were obligatory; a conditional or merely advisory duty could not produce the concomitant contractual refund.

The Court further found that Clauses 5(viii)/(ix) unambiguously promised that upon receipt of the first instalment and on grant of approvals HUDCO would make the Agreement to Sub-lease available and hand over possession; but HUDCO did not secure the perpetual lease in its favour and therefore could not execute the sub-lease or deliver possession. Documentary correspondence from early-1995 confirmed HUDCO’s requests to the Ministry to obtain the perpetual lease, and the perpetual lease was in fact executed only on 04.07.1997 after cancellation.

The Court therefore concluded HUDCO breached reciprocal contractual obligations and could not lawfully insist on second/third instalments; forfeiture could not stand. The Court also noted HUDCO’s failure to secure revised layout plan approval (material for hotel construction), amplifying breach findings. Having found breach, the Court nonetheless applied equitable restraint to the question of interest. Relying on the principle in Central Bank of India v. Ravindra & Ors. (quoted), the Court acknowledged that interest under Section 34 CPC is discretionary and equitable.

Crucially, the Court analyzed the appellant’s conduct: failure to deposit Rs.15 crores under the High Court’s status-quo order, unconditional withdrawal of the First Suit (and subsequent forum change), and abandonment of possession relief in the Second Suit to avoid ad-valorem court fee. The Court found these acts to constitute forum shopping, abuse of process, and lack of clean hands, amounting to misconduct disentitling the appellant to interest as discretionary relief.

Balancing contractual sanctity with equitable considerations, the Court allowed refund of the principal sum (Rs. 28,11,31,939) but denied contractual or discretionary interest. A conditional protective direction was given: if HUDCO failed to refund within three months, interest at 6% per annum would apply till realisation. The Court limited its findings strictly to the subject site and avoided pronouncements on other allotments.

a. RATIO DECIDENDI

The operative ratio is twofold.

First, where a commercial allotment letter places reciprocal obligations on a lessor (here HUDCO) to secure statutory approvals and execute transfer/sub-lease documents, such obligations are mandatory if the contract conditions a buyer’s further performance on those acts; failure by the lessor constitutes breach and precludes forfeiture of amounts deposited.

Second, the grant of interest under Section 34 CPC is equitable and discretionary and may be denied where the claimant’s litigation conduct (forum shopping, non-compliance with court orders, abandonment of consequential relief to avoid fees) demonstrates unclean hands; equity will refuse to reward procedural or substantive impropriety.

b. OBITER DICTA

The Court observed that commercial documents should be interpreted to give effect to original party intention and not to produce results defeating that intent. It also remarked that differential administrative treatment (e.g., Ansal’s interest-free extensions) without plausible justification supports inference of arbitrariness though not determinative. The Court further reiterated established equitable maxims: he who seeks equity must do equity and courts cannot abet inequity. These observations serve as guidance for future allotment disputes.

c. GUIDELINES 

i. When contractual refund is expressly conditioned on the lessor obtaining statutory approvals, courts will construe the obligation as mandatory unless the text compels otherwise.
ii. Forfeiture clauses will yield where the party seeking to enforce them has itself failed in reciprocal material obligations.
iii. Courts have wide discretion under Section 34 CPC to award or refuse interest; assessment must consider both monetary justice and litigant conduct.
iv. Litigants must not use procedural devices (withdrawal, forum shifting, abandonment of consequential relief) to manipulate fee liability or court orders; such tactics may forfeit equitable relief.

I) CONCLUSION & COMMENTS

This judgment strikes a calibrated balance between strict contractual enforcement and equitable restraint. On one hand, it affirms the sanctity of reciprocal contractual obligations in government allotments and disallows enforcement of forfeiture where the lessor has not secured required approvals or title to perform. On the other hand, it emphasises that equitable remedies (interest under Section 34 CPC) are conditional on the claimant’s clean litigation behaviour.

Practitioners should draw two practical lessons: draft allotment instruments with clear inter-linked performance conditions and refund mechanics; and litigants seeking equitable relief must maintain procedural propriety and comply with court directions. The Court’s refusal to award interest despite substantive victory is a stern reminder that equitable relief is not automatic even for the party who proves breach. The limited protective direction (6% p.a. if refund delayed) is pragmatic, encouraging prompt compliance by government entities while reserving equity for proper claimants.

J) REFERENCES

a. Important Cases Referred

i. Central Bank of India v. Ravindra & Ors., 2001 INSC 520; [2001] Supp. 4 SCR 323; (2002) 1 SCC 367.

b. Important Statutes Referred

i. Code of Civil Procedure, 1908 (Section 34).
ii. Specific Relief Act, 1963 (proviso to Section 34 referenced).
iii. Urban Land (Ceiling & Regulation) Act, 1976.
iv. Income Tax Act, 1961 (Chapter XX C).