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Synopsis

The Supreme Court, on February 13, 2025, said that any party approaching court claiming equity must come with clean hands as 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.

"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...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," a bench of Justices Surya Kant and Ujjal Bhuyan said.

Dealing with a civil appeal filed by Tomorrowland Limited (formerly M S Shoes East Ltd), the top court held the the appellant was not entitled to any discretionary relief of interest under Section 34 of Civil Procedure Code, even though it found Union government's Housing and Urban Development Corporation Limited was in breach of contractual obligations.

"We find the instant case to be fit to justify a deviation from the established standards. 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 bench said.

Court pointed out that under Section 34 of the CPC, the award of interest is a discretionary exercise steeped in equitable considerations.

The matter pertained to grant of lease of a land for 99 years in order to establish a 5-star Hotel, along with an already-built Car Park at Andrews Ganj in New Delhi. Upon issuance of the allotment letter in 1994, the appellant paid Rs 28,11,31,939. Following a dispute over execution of certain documents in terms of the allotment letter, the appellant declined to pay second and third installments. The appellant filed a suit in the Delhi High Court seeking a permanent injunction to restrain respondent no. 1 from cancelling its allotment and extending the date for depositing money untill the fulfillment of reciprocal obligations.

The high court granted status quo subject to the appellant depositing the money. Subsequently, the respondent cancelled the allotment and forfeited the entire amount.

The appellant filed second suit changing the forum from the high court to Tis Hazari Courts, Delhi (Civil Court), seeking a declaration that the cancellation of allotment was illegal, null and void.

The appellant then moved an application before the high court for the withdrawal of their first suit, on the plea that the second suit had been filed before the civil court on the basis of a fresh cause of action. The first suit was finally dismissed as withdrawn unconditionally.

The civil court eventually decreed the second suit in 2010, inter alia, holding that respondent no. 1 was guilty of committing a breach of the terms of allotment.

The respondent unsuccessfully challenged it in a regular first appeal. However, the high court allowed the regular second appeal in 2016, holding that the appellant admittedly did not have sufficient funds and, thus, wanted to prolong the litigation. The high court went on to observe that the grant of declaration under Section 34 of the Specific Relief Act, being a discretionary relief, could not be bestowed upon a party who indulges in ‘sharp’ practices.

Examining the appeal, the court held that the respondent no. 1, HUDCO 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; failures to execute the sub lease agreement in favour of the appellant and to secure the approval of the revised layout plan for the construction of the hotel.

Thus, the bench held that respondent no. 1 was liable to refund the amount of Rs 28,11,31,939 (first installment 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.

The court said, "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."

Considering the issue of interest, the bench noted the appellant was not entitled to any interest on the amount to be refunded in terms of the allotment letter, though it, of course, could seek award of interest under Section 34 of the CPC.

"There is no gainsaying 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," the bench said.

The court, however, noted the appellant’s actions demonstrated unscrupulous and evasive conduct, apart from their financial incapability to honour the contractual obligations, undermining the essence of the contract.

"We have no hesitation in holding that such conduct 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. 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 court said.

The bench said the material on record sufficiently indicated 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 said.

The court finally set aside the Delhi High Court's judgment and decreed the second suit in part, holding the appellant was entitled to refund of the principal amount without any interest.

It directed respondent no. 1, HUDCO, to refund the amount of Rs 28,11,31,939 to the appellant within three months from the date of this order.

Case Title: M/s Tomorrowland Limited Vs Housing and Urban Development Corporation Limited