Supreme Court Orders Refund of ₹28.11 Crores to Appellant in HUDCO Allotment Dispute: Holds Forfeiture Invalid Due to Breach of Reciprocal Obligations, Denies Interest Citing Manipulative Litigation Conduct

Court’s Decision:

The Supreme Court partially allowed the appeal filed by the appellant and directed the Housing and Urban Development Corporation Limited (HUDCO) to refund the sum of ₹28,11,31,939 without interest. The Court held that HUDCO was in breach of its reciprocal contractual obligations as laid out in the terms of the allotment letter, and therefore, the forfeiture of the appellant’s payment was invalid. However, the Court declined to award interest on the refund, citing the appellant’s inequitable and manipulative conduct throughout the litigation.

Facts of the Case:

1. Context of the Dispute: In 1994, HUDCO allotted a 99-year lease of land at Andrew’s Ganj, New Delhi, for constructing a 5-star hotel and car park. The appellant emerged as the highest bidder and was issued an allotment letter detailing payment and construction obligations.
2. Initial Payments: The appellant paid the first installment of ₹28.11 crores as required under the allotment letter.
3. Breach of Reciprocal Obligations: The appellant claimed HUDCO failed to obtain statutory approvals under the Urban Land (Ceiling and Regulation) Act, 1976, and the Income Tax Act, 1961, as well as to execute a sub-lease agreement. The appellant alleged that payment of subsequent installments was contingent upon HUDCO fulfilling these obligations.
4. Cancellation of Allotment: HUDCO canceled the allotment in 1996 due to the appellant’s failure to pay the remaining installments and forfeited the ₹28.11 crores paid.
5. Litigation: The appellant challenged the cancellation by filing two suits. The first suit was withdrawn, and the second suit sought a declaration that the cancellation was illegal and demanded a refund of the forfeited amount.

Issues:

1. Was HUDCO in breach of its reciprocal contractual obligations under the allotment letter?
2. Was the appellant entitled to a refund of the forfeited amount?
3. If entitled to a refund, should the appellant also receive interest on the refunded amount?

Petitioner’s (Appellant’s) Arguments:

1. HUDCO’s Misrepresentation: The appellant argued that HUDCO failed to disclose that it lacked a perpetual lease over the property, preventing it from executing a sub-lease.
2. Breach of Obligations: HUDCO did not fulfill its contractual obligation to obtain statutory approvals and execute the sub-lease, making it unjust to demand further payments.
3. Discriminatory Treatment: The appellant claimed HUDCO’s cancellation of their allotment was discriminatory, as another bidder, Ansals, was given an interest-free extension for payments.
4. Refund and Interest: The forfeiture of ₹28.11 crores was unjust, and the appellant sought a refund along with interest at 16.48%, the rate HUDCO charged on delayed payments.

Respondent’s (HUDCO’s) Arguments:

1. Contractual Breach by Appellant: HUDCO argued that the appellant failed to make payments as stipulated in the allotment letter, leading to a valid forfeiture of the payment.
2. Procedural Bar: HUDCO contended that the second suit was barred under procedural rules, as the appellant had unconditionally withdrawn the first suit.
3. Manipulative Conduct: HUDCO accused the appellant of forum shopping, dishonoring court orders, and attempting to evade financial obligations by abandoning claims for possession to avoid paying court fees.
4. No Right to Refund or Interest: HUDCO maintained that the forfeiture was justified, and even if refunded, the appellant was not entitled to interest due to their inequitable conduct.

Analysis of the Law:

1. Reciprocal Obligations under the Allotment Letter:

• Clause 5(vi): HUDCO was obligated to secure statutory approvals and execute the necessary documents. Failure to do so required HUDCO to refund payments without interest.
• Court’s Finding: HUDCO breached this obligation, as it neither obtained approvals nor executed the sub-lease, which prevented the appellant from fulfilling its obligations.

2. Breach of Contract by HUDCO:

• HUDCO did not disclose that it lacked the authority to execute the sub-lease due to the absence of a perpetual lease from the Ministry of Urban Development.
• This non-disclosure and subsequent breach invalidated HUDCO’s claim for forfeiture of the appellant’s payment.

3. Discriminatory Treatment:

• The court acknowledged that HUDCO granted favorable terms to Ansals (another bidder), including interest-free payment extensions, while denying similar relief to the appellant. This differential treatment further demonstrated HUDCO’s breach of contractual fairness.

4. Procedural Manipulations by the Appellant:

• The appellant was found to have engaged in forum shopping and manipulative litigation practices, including abandoning claims to avoid court fees and withdrawing the first suit without liberty to file another.
• These actions led the court to deny the appellant any discretionary relief of interest on the refunded amount.

Precedent Analysis:

The court relied on the principles established in Central Bank of India v. Ravindra, emphasizing that awarding interest under Section 34 of the CPC is a discretionary exercise that must be guided by equitable considerations. Given the appellant’s inequitable conduct, the court exercised its discretion to deny interest.

Court’s Reasoning:

1. HUDCO’s Breach of Contract: The court held that HUDCO’s failure to meet its obligations under the allotment letter, including securing statutory approvals and executing the sub-lease, invalidated the forfeiture of the appellant’s payment.
2. Appellant’s Conduct: The court found that the appellant acted in bad faith, engaging in forum shopping and manipulative litigation. This conduct disentitled them from claiming interest on the refund.
3. Equity and Fairness: While acknowledging HUDCO’s breach, the court sought to balance the equities by ordering a refund of the principal amount but denying interest.

Conclusion:

1. Refund Ordered: HUDCO was directed to refund ₹28.11 crores to the appellant within three months.
2. No Interest: The appellant was denied interest on the refunded amount due to their inequitable conduct.
3. Default Interest Rate: If HUDCO failed to refund the amount within the stipulated time, interest at 6% per annum would apply from the due date until realization.

Implications:

• Commercial Transactions: The judgment reinforces the importance of fulfilling reciprocal contractual obligations and the consequences of non-compliance.
• Equity in Litigation: The court emphasized that equitable relief is available only to those who act in good faith, setting a precedent against procedural manipulation and forum shopping.
• Contractual Interpretation: The decision underscores the sanctity of contractual terms and the principle that commercial agreements must be honored in their original spirit.

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