2025 (4) TMI 1311 - SC - Indian Laws

Breach of reciprocal contractual obligations - Forfeiture of the Appellant s payments by Respondent No. 1 namely the Housing and Urban Development Corporation Limited (HUDCO) - entitlement of interest on refund of the forfeited amount. Whether Respondent No. 1/HUDCO was in breach of its reciprocal contractual obligations qua the Appellant? - HELD THAT - Respondent No. 1 even after the receipt of the first instalment did not take any tangible steps to secure the necessary statutory approvals. It is obvious that the said failure led to breach of Clause 5(viii) and (ix) also as admittedly no agreement to sublease was executed in favour of the Appellant owing to the nonexecution of a perpetual lease by Respondent No. 2 in favour of Respondent No. 1. Nonetheless it is proceeded to examine the contention of the Appellant that Respondent No. 1 also concealed the fact that it did not have the title and authority to execute the agreement to sub-lease in favour of the Appellant. Respondent No. 1 being incapable of fulfilling its reciprocal promises was not entitled to demand payment for the second instalment until the perpetual lease deed was executed in its favour. Respondent No. 1 s failure to execute the sub-lease in favour of the Appellant owing to the lack of its authority and title also amounts to a breach of their contractual obligations - there is some merit in the Appellant s grievance of differential treatment when compared to the Ansals. There are no doubt that Respondent No. 1 was in breach of several obligations as contemplated in the Allotment Letter viz. failure to execute documents for securing approval under the ULCR Act and the IT Act; failure to execute the sub lease agreement in favour of the Appellant and; failure to secure the approval of the revised layout plan for the construction of the hotel. Whether the Appellant is entitled to a refund of the forfeited amount under Clause 5(vi) of the Allotment Letter? - HELD THAT - Clause 5 (vi) of the Allotment Letter which deals with the monies paid by the Appellant provides that Respondent No. 1 will execute all required documents to obtain approval from the Competent Authority under the ULCR Act and also from the Appropriate Authority as envisaged in Chapter XX C of the IT Act failing which Respondent No. 1 will refund the amount paid without any interest - it is imperative to maintain the sanctity of the terms of the agreement between the parties. It is a settled position of law that a commercial document ought not to be interpreted in a manner that arrives at a complete variance with what may originally have been the intention of the parties. As a result Respondent No. 1 is liable to refund the amount of Rs. 28, 11, 31, 939 (First instalment of Rs. 27.04 Crores along with interest for three months amounting to Rs. 1, 04, 81, 939/- and Rs. 2.5 Lakhs towards maintenance corpus) deposited by the Appellant pursuant to the Allotment Letter. Whether the Appellant is entitled to interest on refund of the forfeited amount? - HELD THAT - The material on record sufficiently indicates that the Appellant did not approach the Court with clean hands and instead attempted to hoodwink the judicial process by creating a facade to subterfuge their inability to meet their contractual obligations - It needs no emphasis that whosoever comes to the court claiming equity must come with clean hands. The expression clean hands connotes that the suitor or the defendant have not concealed material facts from the court and there is no attempt by them to secure illegitimate gains. Any contrary conduct must warrant turning down relief to such a party owing to it not acting in good faith and beguiling the court with a view to secure undue gain. A court of law cannot be the abettor of inequity by siding with the party approaching it with unclean hands. This also brings to mind the oft-quoted legal maxim he who seeks equity must do equity. The instant case is found to be fit to justify a deviation from the established standards. In the facts and circumstances though we have held Respondent No. 1 to be in breach of several contractual obligations the conduct of the Appellant is rife with instances where it has also sought to undermine the authority and integrity of the judicial process by treating the Court with disregard and attempting to exploit procedural mechanisms for personal gain. The Appellant is not entitled to any discretionary relief of interest under Section 34 of CPC. Conclusion - i) Respondent No. 1/HUDCO was in breach of its reciprocal contractual obligations thereby disentitling them from forfeiting the monies already paid by the Appellant towards the first instalment as enshrined in Clause 5 (iii) of the Allotment Letter dated 31.10.1994. ii) Given that the Appellant has blatantly engaged in forum shopping and considering that their overall conduct does not in any manner reflect an approach aligning with the clean hands doctrine they are not entitled to grant of any discretionary relief of interest in their favour. The Impugned Judgement dated 03.06.2016 passed by the High Court is set aside - appeal disposed off.

Summary

The core legal questions considered by the Court in this appeal are as follows:

(a) Whether the Housing and Urban Development Corporation Limited (Respondent No. 1) was in breach of its reciprocal contractual obligations towards the Appellant under the Allotment Letter dated 31.10.1994?

(b) If such breach is established, whether the Appellant is entitled to a refund of the forfeited amount paid pursuant to the Allotment Letter, specifically under Clause 5(vi) thereof?

(c) Whether the Appellant is entitled to interest on the refund of the forfeited amount, notwithstanding the express contractual provision excluding interest?

Issue-wise Detailed Analysis

1. Breach of Reciprocal Contractual Obligations by Respondent No. 1

The legal framework revolves around the terms of the Allotment Letter, a commercial contract setting out mutual obligations. Clause 5(vi) explicitly required Respondent No. 1 to execute all necessary documents to obtain statutory approvals under the Urban Land (Ceiling and Regulation) Act, 1976 (ULCR Act) and Chapter XX C of the Income Tax Act, 1961 (IT Act). The clause further stipulated that failure to obtain such approvals would obligate Respondent No. 1 to refund the amounts paid by the Appellant without interest or compensation.

The Court interpreted Clause 5(vi) as imposing a mandatory obligation on Respondent No. 1 to secure statutory approvals and execute requisite documents. The refund provision underscored the mandatory nature of this obligation. Respondent No. 1's argument that it merely assisted in executing documents was rejected, as the clause's structure indicated a clear contractual duty.

Further, Clauses 5(viii) and (ix) promised that upon receipt of the first instalment and statutory approvals, an 'agreement to sub-lease' would be executed and possession of the Subject Property (land for a 5-star hotel and car park) handed over to the Appellant. Respondent No. 1 failed to secure the perpetual lease from the Ministry of Urban Development (Respondent No. 2), thereby precluding execution of the sub-lease and possession transfer.

Correspondence and internal documents revealed that Respondent No. 1 did not disclose its lack of title and authority to execute the sub-lease, amounting to misrepresentation. The perpetual lease was executed only after the cancellation of the Appellant's allotment, confirming Respondent No. 1's incapacity to fulfill contractual obligations at the relevant time.

Additionally, Respondent No. 1 failed to obtain necessary approvals for the revised layout plan for hotel construction, a fact later confirmed in arbitration proceedings involving a subsequent allottee.

The Court also noted discriminatory treatment, as another bidder (Ansal Properties) was granted interest-free extensions for instalment payments under similar circumstances, while the Appellant was not afforded such relief and faced cancellation threats.

In sum, the Court concluded that Respondent No. 1 was in breach of multiple contractual obligations: failure to execute documents for statutory approvals under the ULCR and IT Acts, failure to execute the sub-lease agreement due to lack of title, and failure to secure layout plan approval.

2. Entitlement to Refund of Forfeited Amount

Clause 5(vi) explicitly provided that if Respondent No. 1 failed to obtain statutory approvals, it would refund the amounts paid by the successful bidder without interest or compensation. Having found breach of this clause, the Court held that Respondent No. 1 was liable to refund the entire amount paid by the Appellant-Rs. 28,11,31,939, comprising the first instalment, interest paid for delayed payment, and maintenance corpus.

The Court emphasized the sanctity of commercial contracts and rejected any interpretation that would frustrate the parties' original intention. It noted that the Appellant was entitled to refund of the principal sum as per the clear contractual mandate.

3. Entitlement to Interest on Refund

The Allotment Letter expressly excluded payment of interest on refunds under Clause 5(vi). However, the Appellant sought interest at the contractual rate of 16.48%. The Court clarified that interest under Section 34 of the Code of Civil Procedure, 1908 (CPC) is discretionary and governed by equitable considerations.

Relying on authoritative precedent, the Court reiterated that the award of pendente lite or post-decree interest must be fair, judicious, and not arbitrary, balancing the interests of both parties.

The Court examined the Appellant's conduct, noting instances of forum shopping, failure to comply with court orders (notably, failure to deposit Rs. 15 Crores as directed by the High Court), abandonment of relief of possession to avoid court fees, and attempts to prolong litigation despite financial incapacity. These actions demonstrated a lack of clean hands, undermining the Appellant's claim for equitable relief.

Given the Appellant's unclean hands and abuse of judicial process, the Court declined to grant interest on the refund amount, thereby denying discretionary relief under Section 34 CPC.

Additional Legal and Factual Observations

The Court also addressed procedural issues raised by Respondent No. 1, including the bar on the Second Suit under Order II Rule 2 and Order XXIII Rule 1 CPC due to prior litigation and withdrawal without liberty to refile. However, the Court's decision primarily rested on substantive contractual breach and equitable considerations rather than procedural bars.

The Court limited its ruling strictly to the Subject Property (land for the 5-star hotel and car park) and expressly refrained from commenting on disputes relating to other properties or bids.

Significant Holdings

"Clause 5(vi) obligates Respondent No. 1 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. In fact, in the event of failure to do so this very Clause also necessitates that Respondent No. 1 will refund the amount paid without any interest and you shall not be entitled to claim any compensation for damages."

"Respondent No. 1 was in breach of several obligations as contemplated in the Allotment Letter, viz. failure to execute documents for securing approval under the ULCR Act and the IT Act; failure to execute the sub lease agreement in favour of the Appellant and; failure to secure the approval of the revised layout plan for the construction of the hotel."

"The Appellant did not approach the Court with clean hands and instead attempted to hoodwink the judicial process by creating a facade to subterfuge their inability to meet their contractual obligations. ... We hold that in view of the above reasons, the Appellant is not entitled to any discretionary relief of interest under Section 34 of CPC."

"Respondent No. 1/HUDCO, was in breach of its reciprocal contractual obligations, thereby disentitling them from forfeiting the monies already paid by the Appellant towards the first instalment as enshrined in Clause 5 (iii) of the Allotment Letter dated 31.10.1994."

"The Second Suit filed by the Appellant is decreed in part, and the Appellant is held entitled to a refund of the principal amount, without any interest."

Final Determinations

(i) Respondent No. 1 was in breach of its reciprocal contractual obligations under the Allotment Letter, including failure to obtain statutory approvals and execute the sub-lease agreement.

(ii) Consequently, Respondent No. 1 was not entitled to forfeit the amounts paid by the Appellant under Clause 5(iii) of the Allotment Letter.

(iii) The Appellant is entitled to a refund of Rs. 28,11,31,939, representing the first instalment, interest paid on delayed payment, and maintenance corpus.

(iv) The Appellant is not entitled to interest on the refund amount due to its unclean hands and abuse of judicial process, and the express exclusion of interest in the contract.

(v) Respondent No. 1 is directed to refund the principal amount within three months, failing which interest at 6% per annum shall accrue until payment.

(vi) The Court's directions are confined to the Subject Property and do not affect other pending disputes between the parties.