In a significant ruling, the Supreme Court of India has clarified that while interest is typically awarded in commercial disputes under Section 34 of the Civil Procedure Code (CPC) to compensate for the time value of money, it may be denied in cases where a party's conduct undermines judicial integrity.
The Case at Hand
A bench comprising Justices Surya Kant and Ujjal Bhuyan, in the case of M/s. Tomorrowland Limited vs. Housing and Urban Development Corporation Limited & Another [2025 LiveLaw (SC) 205], denied interest on the refund of a forfeited amount. The decision stemmed from the appellant’s conduct, which included forum shopping, withdrawing a suit from the High Court to refile in a lower court, and failing to comply with a court order to deposit ₹15 crores.
The Court’s Rationale
The Supreme Court reiterated that, as a general principle, commercial disputes warrant the award of interest, both pendente lite (during litigation) and post-decree, as a means to compensate the aggrieved party for the delay in receiving rightful payments. The Court noted:
“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. This is because such interest serves to compensate the aggrieved party for the time value of money that was due but withheld during the legal process. It reflects an established norm aimed at ensuring fairness and equity in commercial transactions.”
However, the Court made an exception in this case, stating that the appellant’s actions had demonstrated a blatant disregard for judicial authority. It was observed that the appellant engaged in procedural exploitation and sought to manipulate the system for personal gain. Consequently, the Court ruled:
“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. We, thus, hold that in view of the above reasons, the Appellant is not entitled to any discretionary relief of interest under Section 34 of CPC.”
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Background of the Dispute
The dispute arose between M/s Tomorrowland Limited and the Housing and Urban Development Corporation Limited (HUDCO) over a land allotment agreement. The Court found that HUDCO had violated reciprocal contractual obligations by failing to extend the lease, thereby making it ineligible to forfeit the amount paid by Tomorrowland Limited.
While the Court ordered HUDCO to refund the forfeited amount, it denied interest on the refunded sum due to the appellant’s questionable litigation strategies. Nevertheless, the Court directed that if the refund was delayed beyond three months, an annual interest of 6% would be applicable.
Conclusion
The Supreme Court’s decision in M/s. Tomorrowland Limited vs. HUDCO serves as a precedent for cases where parties misuse judicial processes to their advantage. While upholding the necessity of compensatory interest in commercial disputes, the Court has clarified that such relief is not absolute and may be withheld in cases of procedural misconduct. This ruling aligns with the broader goal of maintaining the integrity of judicial proceedings while ensuring fair commercial practices.
