HUDCO Held To Be In Breach; Directed To Refund Forfeited First Instalment Without Interest

A bench of Justices Surya Kant and Ujjal Bhuyan heard an appeal by M/s Tomorrowland Limited against the Delhi High Court’s 2016 judgment which had set aside concurrent findings of the courts below and dismissed the company’s suit for declaratory relief. The central issue before the Supreme Court concerned the forfeiture by the Housing and Urban Development Corporation Limited (HUDCO) of payments made by the appellant on account of alleged non‑performance and whether HUDCO had itself breached reciprocal contractual obligations under the 1994 allotment letter.

The Court allowed the appeal in part, holding that HUDCO was in breach of several express obligations in the allotment letter and therefore could not lawfully forfeit the sums paid by the appellant. The Supreme Court directed HUDCO to refund Rs. 28,11,31,939 to the appellant within three months, without interest, but provided that in default of payment HUDCO would be liable to pay interest at 6% per annum until realisation. The Court also refused to grant discretionary interest to the appellant under Section 34 of the Civil Procedure Code on account of the appellant’s conduct, observing that the appellant had “not approach[ed] the Court with clean hands” and engaged in forum shopping. The Court, in its reasoning, observed: “Though Respondent No. 1 has, in this regard, attempted to wriggle out of its obligations on the premise that it could only assist the Appellant in executing the necessary documents, we do not find any merit in such submission. We say so for the reason that had it not been obligatory on Respondent No. 1 to execute the necessary documents under the first part of Clause 5(vi), the second part thereof would not have mandated refund of the amount paid by the successful bidder. It seems to us that since the failure to secure approval of the Statutory Authorities and resultant execution of requisite documents has necessary consequences of refund of the amount paid, the first part of Clause 5(vi) is mandatory in nature. Respondent No. 1 therefore cannot be allowed to shirk its responsibility and leave the Appellant at the mercy of the Statutory Authorities for such approvals.” The Court noted the High Court’s contrary observation that “the suit filed by the Appellant suffered from a fatal defect of not claiming possession as a further relief in terms of the proviso to Section 34 of the Specific Relief Act,” but found on the contract terms and factual matrix that HUDCO had failed in its reciprocal duties.

Background The dispute arose from a 1994 allotment by HUDCO, acting on the Ministry of Urban Development’s decision to develop 71 acres at Andrews Ganj, New Delhi. The allotment letter offered a 99‑year lease for a 5‑star hotel site and an already built car park and set out staged payments including (A) hotel site premium of Rs. 64.10 crores and (B) car parking premium of Rs. 14.00 crores, with detailed instalment schedules and conditions. Clause 5(vi) obliged HUDCO to “execute all required documents for obtaining approval of the competent authority under the Urban Land (Ceiling and Regulation) Act, 1976 and also of the Appropriate Authority in terms of Chapter XX C of the Income Tax Act,” and provided that if such approvals were not accorded HUDCO “will refund the amount paid without any interest and you shall not be entitled to claim any compensation for damages.”

The appellant emerged as the highest bidder for the hotel site and paid the first instalment of Rs. 27.04 crores with contractual interest for three months of Rs. 1,04,81,939 and Rs. 2.5 lakhs as maintenance corpus — totalling Rs. 28,11,31,939. Thereafter HUDCO did not execute a perpetual lease in its favour from the Ministry and did not execute an agreement to sub‑lease in favour of the appellant, nor secure statutory approvals; HUDCO cancelled the allotment on 02.05.1996 and forfeited the amount. The appellant pursued litigation: a first suit in the High Court led to a conditional status quo requiring deposit of Rs. 15 crores which the appellant failed to make; that order was vacated and the appellant later filed a second suit in the civil court claiming the cancellation to be void. The civil court decreed the second suit in 2010; the first appellate court affirmed, but the Delhi High Court in 2016 allowed HUDCO’s second appeal, set aside the earlier concurrent findings and held the second suit non‑maintainable for failing to claim possession as a consequential relief.

On appeal to the Supreme Court, it found that HUDCO breached Clauses 5(vi), 5(viii) and 5(ix) by failing to secure approvals, failing to execute the sub‑lease and failing to hand over possession, and that the appellant had been treated differently from other bidders. Applying contractual interpretation and equitable principles, the Court held HUDCO liable to refund the deposited sum as per the clear terms of Clause 5(vi) but declined to award interest under Section 34 CPC in view of the appellant’s procedural conduct. The Court set aside the High Court judgment to that extent and directed refund within three months, with post‑default interest at 6% per annum. The directions were confined to the hotel site and car park; the Court declined to express any view on other properties or pending matters between the parties.

Case No.: 2025 INSC 207 Case Title: M/s. Tomorrowland Limited v. Housing and Urban Development Corporation Limited and Another Appearances: For the Petitioner(s): Shri Tejinder Singh Dhindsa, Senior Counsel For the Respondent(s): Ms. Meenakshi Arora, Senior Counsel (for HUDCO); Ms. Aishwarya Bhati, Additional Solicitor General of India (for Ministry of Urban Development)