Reciprocal contractual obligations and refund rights under an allotment letter limit forfeiture, while equitable interest may still be denied.

Reciprocal contractual obligations under an allotment letter required HUDCO to secure statutory approvals and execute the sub-lease only after the first instalment and necessary clearances were in place. Because HUDCO failed to obtain the approvals and could not validly hand over possession, its breach justified setting aside forfeiture and directing refund of the principal amount paid, including related deposit components. On interest, although Section 34 of the Code of Civil Procedure, 1908 permits discretionary relief, the claimant's conduct, including non-compliance with court directions and forum changes, warranted denial of equitable interest, subject only to conditional default interest if the refund was not made within the stipulated time.

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Issues: (i) whether HUDCO breached its reciprocal contractual obligations under the allotment letter; (ii) whether the appellant was entitled to refund of the forfeited amount without interest; (iii) whether the appellant was entitled to interest on the refunded amount.

Issue (i): whether HUDCO breached its reciprocal contractual obligations under the allotment letter.

Analysis: The allotment letter cast reciprocal obligations on both sides. HUDCO was required to execute documents for statutory approvals under the Urban Land (Ceiling and Regulation) Act, 1976 and Chapter XX-C of the Income-tax Act, and to execute the agreement to sub-lease upon receipt of the first instalment and requisite approvals. The record showed that HUDCO did not secure the necessary approvals, did not have the perpetual lease in place at the relevant time, and therefore could not validly execute the sub-lease or hand over possession. HUDCO's failure also justified unequal treatment concerns when compared with similarly placed allottees who received extensions.

Conclusion: HUDCO was in breach of its reciprocal contractual obligations.

Issue (ii): whether the appellant was entitled to refund of the forfeited amount without interest.

Analysis: Clause 5(vi) of the allotment letter expressly contemplated refund of the amount paid if statutory approvals were not obtained. Since HUDCO was in breach of the contractual framework, forfeiture of the amount already paid could not be sustained. The contractual arrangement required restoration of the principal sum deposited by the appellant, namely the first instalment together with the accompanying maintenance corpus and interest paid thereon.

Conclusion: The appellant was entitled to refund of the forfeited principal amount.

Issue (iii): whether the appellant was entitled to interest on the refunded amount.

Analysis: Although Section 34 of the Code of Civil Procedure, 1908 confers discretion to award interest, the appellant's conduct disentitled it to equitable relief. The Court found that the appellant had failed to comply with the conditional status quo order, withdrew the earlier suit without liberty, changed forums, and abandoned possession to avoid court fees. In these circumstances, the clean hands doctrine and the discretionary nature of interest relief justified denial of interest for the refund period, while preserving a limited fallback interest if the refund was not made within time.

Conclusion: The appellant was not entitled to interest as a matter of discretion, except for the stipulated 6% per annum in case of default in refund within the time granted.

Final Conclusion: The declaration of breach and the refund direction were sustained, the forfeiture was set aside to that extent, and the claim for discretionary interest was refused save for the conditional default interest directed for delayed compliance.

Ratio Decidendi: Where a contract expressly makes refund obligatory upon failure to secure the required approvals, forfeiture cannot be sustained once the promisee is in breach of reciprocal obligations, but equitable interest under Section 34 of the Code of Civil Procedure, 1908 may still be denied on account of the claimant's conduct and lack of clean hands.

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