A) ABSTRACT / HEADNOTE

This case involves M/s Tomorrowland Limited (Appellant) challenging HUDCO’s cancellation of an allotment for a 5-star hotel site at Andrews Ganj and forfeiture of amounts paid under an Allotment Letter dated 31.10.1994. The dispute turns on reciprocal obligations in the allotment document principally Clause 5(vi), (viii) and (ix) which required HUDCO to obtain statutory approvals under the Urban Land (Ceiling & Regulation) Act, 1976 and the Income Tax Act (Chapter XX C) and to execute an Agreement to Sub-lease before demanding subsequent instalments or handing over possession.

The appellant paid the first instalment but refused further payments contending HUDCO had not secured the approvals or executed the sub-lease; HUDCO insisted on instalments, threatened cancellation, and ultimately cancelled the allotment and forfeited ≈Rs.28.11 crore. Lower courts (Civil Court and First Appellate Court) found HUDCO guilty of breach and granted declaratory relief; the High Court reversed, holding the suit non-maintainable for failure to claim consequential possession under the proviso to s.34, Specific Relief Act, and criticizing the appellant’s conduct as inequitable.

The Supreme Court held HUDCO had breached mandatory reciprocal obligations and must refund the forfeited amount (without contractual interest) under Clause 5(vi), but denied discretionary interest under s.34, CPC because the appellant had not come with clean hands (forum-shopping, failure to comply with a status-quo deposit condition, and abandoning possession claim to avoid court fee). Directions were issued for refund within three months, failing which 6% p.a. interest.

Keywords: Breach of contract; Clause 5(vi); Refund of forfeiture; s.34 CPC; Clean hands; Forum shopping; Sub-lease; Statutory approvals.

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The dispute arises from a government-sponsored land allotment exercise (1990 onward) where HUDCO invited bids for development of Andrews Ganj (71 acres). The Appellant became the highest bidder for a parcel intended for a 99-year lease for a 5-star hotel and paid the contractual first instalment under the Allotment Letter dated 31.10.1994. The Allotment Letter incorporated a payment schedule and express reciprocal obligations: HUDCO was to secure approvals under the ULCR Act and Chapter XX C of the IT Act and thereafter execute an Agreement to Sub-lease and hand over possession; in Clause 5(vi) HUDCO undertook to execute “all required documents” and promised refund without interest if approvals were not obtained.

In practice HUDCO did not have a perpetual lease in its favour at the time; the perpetual lease from the Ministry was executed on 04.07.1997 after HUDCO had cancelled the appellant’s allotment (02.05.1996) and invited fresh bids. The appellant challenged cancellation first in the High Court (status-quo; directed to deposit Rs.15 crore which it failed to do), then in city Civil Court by a fresh suit seeking declaration and possession.

Procedural skirmishes included withdrawal of the High Court suit, Order VII r.11 fee objections from Union of India, abandonment of possession relief to avoid ad-valorem court fee, and ultimately divergent findings: trial court and first appellate court found HUDCO guilty of breach; High Court reversed on maintainability and inequitable conduct. The Supreme Court was called to resolve contractual construction (mandatory nature of Clause 5(vi)), entitlement to refund of forfeited amount, and whether equitable interest should be awarded despite contractual bar.

D) FACTS OF THE CASE

Appellant won bid and was issued the Allotment Letter (31.10.1994) for Hotel Site (premium Rs.64.10 crores) and Car Park (Rs.14 crores). Payment schedule required 40% within 4 weeks, 30% within 1 year, 30% within 2 years. Clause 5(vi) obligated HUDCO to obtain statutory approvals under the ULCR Act and Chapter XX C (IT Act) and to execute all required documents; failure to secure approvals mandated refund without interest. Clauses 5(viii)–(ix) promised initial licence/sub-lease and thereafter perpetual sub-lease upon payment and approvals; possession to be handed over upon execution of Agreement to Sub-lease.

Appellant paid the first instalment ~Rs.27.04 crores plus interest for three months and Rs.2.5 lakhs maintenance corpus (total ≈Rs.28.11 crores). HUDCO did not have perpetual lease from Ministry at that time; Appellant repeatedly pressed HUDCO to secure title and approvals (letters dated 03.01.1995 et seq.). HUDCO insisted on later instalments and threatened cancellation. Appellant filed First Suit (1996) seeking injunction and was directed to deposit Rs.15 crores by 08.04.1996 deposit not made; status quo vacated.

HUDCO cancelled allotment (02.05.1996) and forfeited sums, then re-tendered disclosing no lease existed. Appellant filed Second Suit in Civil Court for declaration and possession; proceedings traversed fee objections, withdrawal of earlier High Court suit, abandonment of possession relief (to avoid fee), and conflicting adjudications: trial court decreed for appellant (breach, discrimination); First Appellate Court affirmed;

High Court allowed second appeal holding decree non-maintainable for failing to claim consequential possession per proviso to s.34 SR Act and found appellant’s conduct inequitable. Arbitration and a separate award for Leela (later successful bidder) confirmed HUDCO’s disclosure failures with refund and interest, adding persuasive context.

E) LEGAL ISSUES RAISED

1. Whether HUDCO breached its reciprocal contractual obligations under Clause 5(vi), (viii), (ix) of the Allotment Letter by failing to secure statutory approvals and execute the sub-lease?

2. If HUDCO breached, whether the Appellant is entitled to refund of the forfeited amount under Clause 5(vi)?

3. Whether Appellant is entitled to award of interest under s.34 CPC despite contractual clause excluding interest?

4. Whether the declaratory suit was maintainable without claiming consequential relief of possession as required by proviso to s.34, Specific Relief Act?

5. Whether the appellant’s procedural conduct (withdrawal, non-deposit, forum-shopping) disentitles it to equitable relief (clean-hands doctrine)?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for Petitioner/Appellant submitted that: HUDCO misrepresented that it could execute the sub-lease and had title; Clause 5(vi) imposed mandatory duty on HUDCO to secure statutory approvals and execute documents; in absence of those approvals the subsequent instalments were not due; HUDCO’s cancellation and forfeiture were therefore unlawful; discrimination with Ansals (who got extensions) and parity with Leela (which obtained an arbitration award including refund and interest) warranted relief; even if contractual clause barred contractual interest, equitable interest should be granted; and abandonment of possession relief in Second Suit was compelled by HUDCO’s failure to execute sub-lease (possession could not be sought without sub-lease).

G) RESPONDENT’S ARGUMENTS

The counsels for Respondent/HUDCO submitted that: the appellant defaulted payment schedule entitling HUDCO under Clause 5(iii) to cancel and forfeit; the contractual forfeiture clause was independent; appellant’s different forum tactics (withdrawing HC suit, failure to deposit Rs.15 crore) and abandonment of possession relief to avoid ad-valorem fees exposed mala fides; second suit was barred under Order II r.2 and procedural rules; appellant never moved to secure statutory approvals or show willingness to perform; equitable relief (interest) must be denied for unclean hands.

H) JUDGEMENT 

The Court held HUDCO had breached reciprocal obligations. Clause 5(vi) was construed as mandatory because its second limb (mandating refund without interest if approvals not accorded) would be redundant unless HUDCO had a mandatory duty to obtain approvals. Conjoint reading of Clauses 5(viii)–(ix) showed HUDCO bound to execute Agreement to Sub-lease and hand over possession only after approvals and sub-lease; HUDCO lacked a perpetual lease at the material time and thus could not execute the sub-lease nor hand possession.

Documentary correspondence and internal records supported the appellant’s contention that HUDCO sought the Ministry’s execution of the perpetual lease after the appellant had paid and in fact only obtained lease on 04.07.1997, after cancellation. The Court found further breaches: HUDCO failed to secure revised layout plan approvals (issue later judicially recognized in Leela arbitration). Differential treatment vis-à-vis Ansals also lent weight to appellant’s discrimination grievance. On legal consequences, the Court held sanctity of the allotment document required enforcing Clause 5(vi) refund provision; thus HUDCO must refund Rs.28,11,31,939 (principal and three months’ contractual interest component and maintenance corpus).

However the appellant could not claim contractual interest because the clause expressly disclaimed interest; but the Court could still, in its discretion under s.34 CPC, award interest dehors contract. Exercising that discretion required equitable conduct by claimant. The Court reviewed appellant’s conduct: failure to deposit Rs.15 crore under status-quo; unconditional withdrawal of HC suit (appearing to avoid jurisdiction); abandonment of possession relief to escape ad-valorem fee; and other indicators of forum shopping and financial incapacity.

Applying clean hands maxim and precedent (Central Bank of India v. Ravindra & Ors.), the Court declined discretionary interest. Relief: refund of Rs.28,11,31,939 within three months; in default 6% p.a. interest thereafter. High Court’s contrary finding on maintainability was set aside only to the extent of refund.

a. RATIO DECIDENDI

The decisive legal principle: where a commercial/allotment document makes execution of statutory-approval steps a condition precedent and simultaneously prescribes refund if approvals are not obtained (Clause 5(vi)), the obligation on the allotter is mandatory and enforceable. Failure to obtain approvals and thereby inability to execute sub-lease constitutes fundamental breach entitling the unsuccessful party to restitution of amounts paid as per the contract.

Separately, award of interest under s.34 CPC is discretionary and subject to equitable doctrines; a claimant’s procedural and substantive misconduct (forum shopping, non-compliance with court-ordered deposits, abandonment to avoid fees) disentitles them to discretionary relief.

b. OBITER DICTA

Court observed that commercial documents must be construed to preserve original intention and not defeat parties’ bargain; that differential treatment of similarly placed bidders raises discrimination concerns; and that arbitral outcomes in related disputes (Leela) afford persuasive context. The Court reiterated that mere lapse of time does not bar relief where contractual mandates exist and equity is satisfied.

c. GUIDELINES 

• Construction: Treat clauses promising refunds upon non-compliance by the allotter as imposing mandatory duties unless language indicates permissive assistance only.

• Reciprocity: Payment obligations are reciprocal; allottee need not perform later instalments where allotter fails mandatory pre-conditions.

• s.34 CPC: Courts should assess claimant’s conduct before awarding discretionary interest; clean hands is essential.

• Procedural Abuse: Withdrawal of proceedings to change forum or abandon relief to avoid fees will be scrutinised and may disentitle to equitable relief.

• Remedies: Decrees for refund should be time-bound and carry default interest to prevent delay by public bodies.

I) CONCLUSION & COMMENTS

The Supreme Court carefully balanced contractual sanctity against equitable conduct. It vindicated the contractual promise of refund under Clause 5(vi) while refusing to rubber-stamp a monetary windfall in the form of discretionary interest where the claimant’s litigation conduct undermined his equity.

The judgment emphasises two complementary themes for practitioners:

(i) precise drafting of reciprocal conditions in allotment/lease documents will be robustly enforced; and

(ii) claimants seeking equitable supplements (interest) must maintain procedural propriety and transparent conduct.

The decision is instructive for public authorities: concealment about title and regulatory approvals invites contractual liability and potential discrimination claims; for private bidders, it warns against procedural manoeuvres (withdrawing suits, avoiding court fees) that will be fatal to equitable relief. Finally, the Court’s remedial approach (refund without contractual interest but with statutory default rate on delay) strives to deter dilatory behaviour while upholding contractual fairness.

J) REFERENCES

a. Important Cases Referred

1. Central Bank of India v. Ravindra & Ors., (2002) 1 SCC 367 (Constitution Bench) — (discretionary award of interest under s.34 CPC).

2. M/s Tomorrowland Limited v. HUDCO & Anr., [2025] 2 S.C.R. 998 : 2025 INSC 207 (Supreme Court Judgment used herein).

b. Important Statutes Referred

1. Code of Civil Procedure, 1908 — s.34; Order VII r.11; Order II r.2; Order XXIII r.1(3).

2. Specific Relief Act, 1963 — s.34 (proviso on consequential relief).

3. Urban Land (Ceiling & Regulation) Act, 1976 (statutory approvals referenced in Allotment Letter).

4. Income Tax Act, 1961 — Chapter XX C approvals referenced.