Supreme Court On Breach of Contract and Forfeiture Of The Amount Paid

Supreme Court while heard the appeal against the judgment of the High Court of Delhi, which had overturned the concurrent findings of the lower courts and dismissed M/s. Tomorrowland Limited’s suit seeking declaratory relief as not maintainable. The crux of the dispute revolved around the forfeiture of payments made by M/s. Tomorrowland Limited by the Housing and Urban Development Corporation Limited (HUDCO) due to alleged non-performance of contractual obligations by the appellant.

Case Background:

The genesis of the case lies in a 1990 decision by the Ministry of Urban Development (MUD) to develop land in Andrew's Ganj, New Delhi, through HUDCO. Bids were invited for various properties, including land to be leased for 99 years for a 5-star hotel with a car park (the Subject Property), which is the sole focus of this appeal. M/s. Tomorrowland Limited emerged as the highest bidder and was issued an allotment letter in 1994, stipulating payment schedules and other conditions, including HUDCO's obligation to obtain statutory approvals and execute an ‘agreement to sub-lease’ upon receipt of the first installment.

A dispute arose when M/s. Tomorrowland Limited contended that subsequent payment installments were contingent upon HUDCO fulfilling its reciprocal obligations. HUDCO insisted on payment despite lacking a perpetual lease from MUD, which prevented the execution of the sub-lease. This led to the appellant filing the First Suit seeking an extension of payment timelines. After failing to comply with a conditional status quo order to deposit a certain amount, the allotment was cancelled, and the deposited amount was forfeited. M/s. Tomorrowland Limited then filed the Second Suit challenging the cancellation, which initially saw success in the Civil Court but was later dismissed by the High Court, prompting the appeal to the Apex Court.

The Apex Court meticulously examined the terms of the Allotment Letter and concluded that HUDCO was indeed in breach of its contractual obligations. The Court specifically highlighted Clause 5(vi), which mandated HUDCO to secure approvals under the Urban Land (Ceiling and Regulation) Act, 1976, and the Income Tax Act, 1961, stating that this was a mandatory obligation, and failure to do so necessitated a refund of the paid amount. Furthermore, the Apex Court observed that HUDCO's failure to obtain a perpetual lease from MUD also resulted in a breach of Clauses 5(viii) and (ix) of the Allotment Letter, as it could not execute the ‘agreement to sub-lease’ or hand over possession of the Subject Property.

The Apex Court also noted the differential treatment accorded to Ansals, another bidder who received interest-free extensions under similar circumstances. However, the Apex Court also made critical observations regarding the conduct of M/s. Tomorrowland Limited. It noted the appellant's failure to comply with the High Court's order for deposit in the First Suit, their subsequent unconditional withdrawal of the First Suit to change the forum, and the abandonment of the relief of possession in the Second Suit to evade court fees, characterizing these actions as forum shopping and an attempt to hoodwink the judicial process. While acknowledging the general principle of awarding interest in commercial disputes, the Apex Court held that the appellant's conduct, demonstrating a lack of ‘clean hands’, disentitled them to any discretionary relief of interest under Section 34 of the Code of Civil Procedure, 1908.

While setting aside the High Court's judgment, the Apex Court ultimately allowed the appeal in part and held that HUDCO was in breach of its contractual obligations and was not entitled to forfeit the monies paid by M/s. Tomorrowland Limited. Consequently, the Second Suit was partly decreed, and M/s. Tomorrowland Limited was held entitled to a refund of the principal amount of Rs. 28,11,31,939 without any interest. The Apex Court directed HUDCO to refund this amount within three months, with a provision for interest at 6% per annum in case of default.

The judgment explicitly clarified that these directions pertained only to the Subject Property and did not affect other pending disputes between the parties.

Coram: Justice Surya Kant and Justice Ujjal Bhuyan
Between: MS Tomorrowland Limited vs Housing and Urban Development Corporation (HUDCO) 2025 INSC 207
Date of Judgment: 13-02-2025