Award Of Interest U/S 34 CPC Is A Discretionary Exercise Steeped In Equitable Considerations: Apex Court
The Supreme Court partly allowed a Civil Appeal of a company against the Judgment of the Delhi High Court.
The Supreme Court reiterated that under Section 34 of the Civil Procedure Code, 1908 (CPC), the award of interest is a discretionary exercise steeped in equitable considerations.
The Court reiterated thus in a Civil Appeal filed by a company against the Judgment of the Delhi High Court by which it set aside the concurrent findings of the lower Court and dismissed the suit seeking declaratory relief.
The two-Judge Bench comprising Justice Surya Kant and Justice Ujjal Bhuyan observed, “… 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. … It is trite law that under Section 34 of the CPC, the award of interest is a discretionary exercise steeped in equitable considerations.”
The Bench referred to the Judgment in the case of Central Bank of India v. Ravindra & Ors. (2002) in which the Apex Court held that an award of interest pendente lite or post-decree is discretionary with the Court as it is essentially governed by Section 34 of the CPC de hors the contract between the parties.
Senior Advocates Tejinder Singh Dhindsa and M.C. Dhingra appeared for the Appellant while Senior Advocate Meenakshi Arora appeared for the Respondents.
Facts of the Case
The dispute in this case was regarding the forfeiture of the Appellant’s payments by the Respondent i.e., the Housing and Urban Development Corporation Limited (HUDCO), on account of non-performance of contractual obligations. In 1990, the Ministry of Urban Development (MUD), Government of India decided to develop an area through HUDCO. Hence, bids were invited by HUDCO for the same and the Appellant emerged as the highest bidder. Resultantly, an Allotment Letter was issued and the Appellant duly deposited the first instalment. Subsequently, a dispute arose between the parties on account of the Appellant’s assertion that HUDCO was obligated to execute certain documents after obtaining clearances under the Income Tax Act, 1961 (ITA) and the Urban Land (Ceiling and Regulation) Act, 1976 (ULCR Act).
The Appellant thus claimed that the 2nd and 3rd instalments would become due in HUDCO’s favour only when the said documents are executed. HUDCO was not in a position to execute the “agreement to sub-lease” and rather sought to threaten the Appellant that non-compliance with the payment schedule would result in cancellation of the allotment in its favour. As a result, the Appellant filed a Suit before the High Court seeking mandatory injunction against HUDCO to extend the dates for payment of 2nd and 3rd instalments until HUDCO fulfilled its reciprocal obligations. The Appellant further sought a permanent injunction to restrain HUDCO from cancelling its allotment. The High Court passed a conditional status quo Order in terms whereof the Appellant was directed to deposit Rs. 15 crores and as the Appellant failed to deposit the said amount, the said Order stood vacated.
Pursuantly, the HUDCO cancelled the allotment and forfeited the entire amount of Rs 28,11,31,939/-. Hence, fresh bids were invited and being aggrieved by this, the Appellant filed a fresh Suit changing the forum from the High Court to Tis Hazari Courts, Delhi. The Appellant also moved an application for the withdrawal of their first Suit. Meanwhile, another company emerged as the highest bidder in the fresh bid invited by HUDCO. The Civil Court eventually decreed the Second Suit, holding HUDCO guilty of committing a breach of the terms of allotment. HUDCO’s Regular First Appeal was dismissed and still aggrieved, it filed a Regular Second Appeal before the High Court. The High Court overturned the concurrent findings of the lower Courts and hence, the Appellant was before the Apex Court.
Reasoning
The Supreme Court in the above regard, said, “… we have no doubt in our mind 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.”
The Court held that HUDCO is liable to refund the forfeited amount deposited by the Appellant pursuant to the Allotment Letter. It further emphasised that the power to award interest ought to be exercised judiciously, aligning with equitable considerations and also ensuring neither undue enrichment nor unfair deprivation.
“Courts are duty-bound to assess the facts and circumstances of each case, applying the principles of fairness and justice. This discretion must reflect a balanced approach, grounded in reason, and guided by the overarching objective of equity”, it added.
Furthermore, the Court observed that the Appellant’s conduct of withdrawing the First Suit unconditionally was nothing short of a brazen attempt at forum shopping, as the Appellant wanted to avoid the jurisdiction of the High Court before whom they had failed to prove their bona fides by not depositing the stipulated sum. It added by saying that such demeanour not only raises grave suspicions on the Appellant’s propriety, but also amounts to sheer abuse of the process of law and a waste of precious judicial time.
“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. We are constrained to observe that the intent of the Appellant throughout appears to be that of prolonging the litigation to cloak its impecuniousness”, it remarked.
The Court also reiterated that whosoever comes to the Court claiming equity, must come with clean hands and that a Court of law cannot be the abettor of inequity by siding with the party approaching it with unclean hands.
“We are conscious of the fact that as a general principle, in commercial disputes, the award of interest pendente lite or post decree is typically granted as a matter of course. … Having said so, we find the instant case 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”, it concluded.
Accordingly, the Apex Court partly allowed the Appeal.
Cause Title- M/s. Tomorrowland Limited v. Housing and Urban Development Corporation Limited and Another (Neutral Citation: 2025 INSC 207)
Appearance:
Appellant: Senior Advocates Tejinder Singh Dhindsa, M.C. Dhingra, AOR Gaurav Dhingra, Advocates Pawan Sachdeva, Ishan Sachdeva, Niharika Dubey, Shashank Singh, Piyush Kant Roy, and K K R Dass.
Respondents: Senior Advocate Meenakshi Arora, ASG Aishwarya Bhati, AORs Nikilesh Ramachandran, Amrish Kumar, Advocates Sonal Kumar Singh, Obhirup Ghosh, Suhasini Sen, Saurabh Mishra, Vanshaja Shukla, T.S. Sabarish, and Ishaan Sharma.
