Supreme Court settles contractual obligations in property allotment case: Tomorrowland vs. HUDCO (2025)

Introduction

Date of the Judgment: 13 February 2025
Citation: 2025 INSC 207
Judges: Surya Kant, J. and Ujjal Bhuyan, J.

When contractual obligations are not honoured in property allotment cases, what recourse do parties have? The Supreme Court of India recently addressed a dispute between M/s. Tomorrowland Limited and the Housing and Urban Development Corporation Limited (HUDCO) concerning the forfeiture of payments due to alleged non-performance of contractual obligations. This judgment clarifies the responsibilities of both parties in such agreements and the conditions under which forfeiture of payments is justified.

The bench, comprising Justice Surya Kant and Justice Ujjal Bhuyan, delivered the judgment. The core issue revolved around whether HUDCO was justified in forfeiting payments made by Tomorrowland due to alleged breaches of the allotment terms for a property intended for a 5-star hotel.

Case Background

In 1990, the Ministry of Urban Development, Government of India (MUD), planned to develop 71 acres of land in Andrew’s Ganj, New Delhi, through HUDCO. Bids were invited for various properties, including land leased for 99 years to establish a 5-star hotel with a pre-built car park. M/s. Tomorrowland Technologies Exports Limited (formerly M S Shoes East Ltd.) emerged as the highest bidder for the hotel site.

On October 31, 1994, HUDCO issued an allotment letter outlining the terms and conditions, including a premium of Rs. 64.10 Crores for the hotel site and Rs. 14.00 crores for the car parking space, payable in installments. The construction of the hotel was to be completed within three years of handing over the possession.

A dispute arose when Tomorrowland claimed that HUDCO was obligated to obtain clearances under the Income Tax Act, 1961, and the Urban Land (Ceiling and Regulation) Act, 1976, and execute an ‘agreement to sub-lease’ before the second and third installments became due. Tomorrowland asserted that HUDCO had not fulfilled these reciprocal obligations.

Timeline

Course of Proceedings

Tomorrowland initially filed Suit No. 275/1996 before the High Court, seeking a mandatory injunction to extend the payment dates for the second and third installments until HUDCO fulfilled its reciprocal obligations, along with a permanent injunction to prevent HUDCO from canceling the allotment. The High Court passed a conditional status quo order on January 31, 1996, directing Tomorrowland to deposit Rs. 15 Crores by April 8, 1996, which Tomorrowland failed to do.

Following the cancellation of the allotment by HUDCO on May 2, 1996, Tomorrowland filed a fresh suit, Suit No. 1/1997, before the Tis Hazari Courts, Delhi, seeking a declaration that the cancellation was illegal. The High Court rejected Tomorrowland’s application to withdraw the First Suit, but it was eventually dismissed unconditionally.

The Civil Court decreed the Second Suit on July 3, 2010, holding that HUDCO had breached the terms of allotment and discriminated against Tomorrowland. However, the High Court overturned this decision on June 3, 2016, stating that the suit suffered from a fatal defect for not claiming possession as a further relief under Section 34 of the Specific Relief Act, 1963.

Legal Framework

The case involves the interpretation and application of several legal provisions:

• Section 34 of the Specific Relief Act, 1963 (SR Act): This section deals with declaratory decrees. It states that any person entitled to any legal character, or to any right as to any property, may institute a suit against any person denying, or interested to deny, his title to such character or right, and the court may in its discretion make therein a declaration that he is so entitled, and the plaintiff need not in such suit ask for any further relief.
  “Provided that no court shall make any such declaration where the plaintiff, being able to seek further relief than a mere declaration of title, omits to do so.”
• Order II Rule 2 of the Code of Civil Procedure (CPC): This rule prevents a plaintiff from filing multiple suits based on the same cause of action.
• Order XXIII Rule 1 of the Code of Civil Procedure (CPC): This rule deals with the withdrawal of suits and the conditions under which a fresh suit can be instituted.

Arguments

Arguments on behalf of the Appellant (Tomorrowland):

• HUDCO failed to disclose that it had no subsisting lease to execute the sub-lease in favor of Tomorrowland, constituting misrepresentation.
• HUDCO was obligated to execute the ‘agreement to sub-lease’ and obtain statutory approvals after the first installment payment, but failed to do so.
• The High Court erred in holding that the Second Suit suffered from a fatal defect for not claiming possession, as possession could only be sought after the sub-lease agreement was executed.
• Tomorrowland deserved to be treated at par with Leela Hotels Limited, which received a refund with interest in a similar situation.
• The treatment meted out to Tomorrowland was discriminatory compared to Ansal Properties & Industries Limited, who were granted interest-free extensions.
• The forfeiture of the amount paid by Tomorrowland was due to misconstruction of the Allotment Letter and not due to any actual loss suffered by HUDCO.

Arguments on behalf of the Respondent No. 1 (HUDCO):

• Tomorrowland defaulted on the payment schedule, breaching contractual obligations, and HUDCO exercised its right to cancel the allotment and forfeit the deposited amount.
• The Second Suit was barred under Order II Rule 2 of the CPC, as the cause of action was the same as the First Suit.
• The Second Suit was also barred under Order XXIII Rule 1 of the CPC, as the First Suit was unconditionally withdrawn without liberty to institute a fresh suit.
• Tomorrowland abandoned the consequential relief of possession in the Second Suit to avoid paying court fees, defying Section 34 of the SR Act.
• Tomorrowland attempted to overreach the judicial process, indulge in forum shopping, and finagle the judicial process.
• Unlike Tomorrowland, Ansal Properties & Industries Limited had secured approval from the Income Tax authorities.

Arguments [TABLE]

Issues Framed by the Supreme Court

1. Whether Respondent No. 1/HUDCO was in breach of its reciprocal contractual obligations qua the Appellant?
2. If so, whether the Appellant is entitled to a refund of the forfeited amount under Clause 5(vi) of the Allotment Letter?
3. If Issue (b) above is answered in the affirmative, whether the Appellant is entitled to interest on refund of the forfeited amount?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The court considered the following authorities:

• Central Bank of India v. Ravindra & Ors.; (2002) 1 SCC 367 – Supreme Court of India: This case was relied upon for the principle that the award of interest pendente lite or post-decree is discretionary with the Court and is governed by Section 34 of the CPC. The Court emphasized that discretion should be exercised fairly and judiciously.
• Section 34 of the Code of Civil Procedure (CPC): This provision was considered for the power of the court to award interest on the principal sum from the date of the suit to the date of the decree.
• Clause 5(vi) of the Allotment Letter: This clause was central to determining the obligations of HUDCO regarding statutory approvals and the refund of amounts paid by Tomorrowland.

Authorities [TABLE]

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Central Bank of India v. Ravindra & Ors.; (2002) 1 SCC 367: The Court cited this authority to emphasize that the award of interest is a discretionary exercise steeped in equitable considerations.

The Supreme Court allowed the appeal in part, holding that HUDCO was in breach of its reciprocal contractual obligations and was not entitled to forfeit the monies paid by Tomorrowland. However, the Court denied Tomorrowland any interest on the refund, citing their engagement in forum shopping and overall conduct that did not align with the clean hands doctrine.

The Court directed HUDCO to refund Rs. 28,11,31,939 to Tomorrowland within three months from the date of the order. In the event of failure to refund within the stipulated time, Tomorrowland would be entitled to interest at 6% per annum until the date of realization.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Breach of Contractual Obligations by HUDCO: The Court found that HUDCO had failed to fulfill its obligations under the Allotment Letter, particularly in securing statutory approvals and executing the sub-lease agreement.
• Conduct of Tomorrowland: The Court took a dim view of Tomorrowland’s conduct, including their attempts at forum shopping, abandoning the relief of possession to avoid court fees, and overall attempts to prolong the litigation.
• Equitable Considerations: While acknowledging that interest is typically awarded in commercial disputes, the Court found that Tomorrowland’s conduct disentitled them from the discretionary relief of interest.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

Logical Reasoning

ISSUE: Whether HUDCO was in breach of its reciprocal contractual obligations?

+-----------------------------------------------------+
|  HUDCO failed to execute documents for statutory   |
|  approvals under ULCR Act and IT Act               |
+-----------------------------------------------------+
        ↓
+-----------------------------------------------------+
|  HUDCO failed to execute the sub-lease agreement  |
|  in favor of Tomorrowland                         |
+-----------------------------------------------------+
        ↓
+-----------------------------------------------------+
|  HUDCO failed to secure approval of the revised   |
|  layout plan for the construction of the hotel      |
+-----------------------------------------------------+
        ↓
+-----------------------------------------------------+
|  Therefore, HUDCO was in breach of its reciprocal |
|  contractual obligations                           |
+-----------------------------------------------------+
                

Key Takeaways

• Parties entering into property allotment agreements must ensure that all reciprocal obligations are clearly defined and adhered to.
• Failure to fulfill contractual obligations can lead to a refund of payments, but the conduct of the parties will be considered when determining entitlement to interest.
• The “clean hands” doctrine is crucial, and parties must approach the court with honesty and integrity to be entitled to equitable relief.

Directions

The Supreme Court directed HUDCO to refund the amount of Rs. 28,11,31,939 to Tomorrowland within three months from the date of the order. In the event of failure to refund within the stipulated time, Tomorrowland would be entitled to interest at 6% per annum until the date of realization.

Development of Law

The ratio decidendi of the case is that while a party in breach of contract is liable to refund payments received, the entitlement to interest on such refunds is subject to equitable considerations, including the conduct of the party seeking the refund. This decision reinforces the importance of the “clean hands” doctrine in seeking equitable relief and clarifies the discretionary nature of awarding interest in commercial disputes.

Conclusion

In the case of M/s. Tomorrowland Limited versus Housing and Urban Development Corporation Limited and Another, the Supreme Court directed HUDCO to refund the principal amount to Tomorrowland, emphasizing the importance of adhering to contractual obligations. However, it denied interest on the refund due to Tomorrowland’s conduct, highlighting the significance of equitable principles and the “clean hands” doctrine in seeking legal remedies.