The Supreme Court has held that the Government of Maharashtra cannot refuse to refund premium collected for additional Floor Space Index (FSI) merely because the statutory framework does not expressly provide for such a refund.
Holding that the State’s action violated the principles of fairness and equality under Article 14 of the Constitution, the bench of Justice Sanjay Kumar and Justice K. Vinod Chandran directed the authorities to refund over ₹27.41 lakh, along with interest, to landowners who never utilised the additional FSI for which the premium had been paid.
The appellants owned agricultural land in Pune district and, in 2012, sought permission to develop it as a group housing project under Maharashtra’s homogeneous development scheme applicable to areas adjoining municipal corporation limits. To obtain additional FSI beyond the permissible limit, they paid a premium of ₹30,46,290 as determined by the authorities.
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Subsequently, however, the landowners abandoned the proposed housing project and instead sought permission to subdivide the land into plots. The authorities approved the revised proposal in 2014.
Since the additional FSI was never utilised, the appellants applied in August 2015 for a refund of the premium paid. Their request was ultimately rejected in February 2020 on the ground that the Development Control Regulations did not contain any provision permitting such a refund for residential projects. The Bombay High Court also dismissed their writ petition, holding that the statutory scheme did not contemplate refund and that the State could not be faulted merely because the project was abandoned by the landowners.
The Supreme Court first rejected the High Court’s finding that the claim suffered from delay.
The Bench noted that the refund application had been filed within three years of payment of the premium. The delay thereafter was entirely attributable to the authorities, who failed to take any decision despite even receiving a recommendation from the Sub-Divisional Officer supporting the refund claim. The appellants had been compelled to approach the High Court only because of the administrative inaction.
Accordingly, the Court held that no delay could be attributed to the appellants.
Examining the merits, the Court observed that it was undisputed that the appellants never utilised the additional FSI for which the premium had been collected.
Despite permitting the appellants to abandon the housing project and proceed with plotting, the authorities retained the entire premium without conferring any corresponding benefit.
The Bench held that such conduct could not be regarded as fair or reasonable.
The State sought to justify its decision by contending that no provision existed for refund of premium paid towards residential projects and that refund was available only in limited circumstances relating to educational institutions, medical institutions, institutional buildings and star-category hotels.
The Supreme Court found this distinction wholly irrational.
The Court observed that Maharashtra itself had framed policies permitting refund of premium for unutilised additional FSI in respect of certain categories of buildings, subject to deduction of administrative charges.
The Bench held that there was no intelligible basis for denying the same benefit where additional FSI remained unutilised in residential or group housing projects.
According to the Court, the effect of unutilised FSI remains identical irrespective of the nature of the building. Consequently, differentiating between educational institutions, hospitals and hotels on one hand, and residential developments on the other, lacked any rational nexus.
The Court further noted that the State also attempted to distinguish between Mumbai and Pune by claiming that the refund policy applied only to the Greater Mumbai area.
The Bench found this argument equally unsustainable, observing that the Government had itself adopted a broader policy concerning levy and sharing of FSI premiums across Maharashtra. The absence of relevant regulations on record further weakened the State’s defence.
The judgment places considerable emphasis on Article 14 of the Constitution and the principle that State action must always be fair, reasonable and non-arbitrary.
Relying upon landmark Constitution Bench decisions including E.P. Royappa v. State of Tamil Nadu, Ajay Hasia v. Khalid Mujib Sehravardi, Kumari Shrilekha Vidyarthi v. State of Uttar Pradesh, Dwarkadas Marfatia v. Board of Trustees of the Port of Bombay, and SEBI v. Sunil Krishna Khaitan, the Court reiterated that arbitrariness is fundamentally incompatible with equality.
The Bench held that every action of the State, whether arising in statutory, administrative or contractual contexts, must satisfy the constitutional standard of fairness. Merely pointing to the absence of an express refund provision cannot justify retention of public money when no corresponding benefit has accrued to the payer.
While recognising the appellants’ entitlement to refund, the Supreme Court accepted that administrative expenses could legitimately be deducted.
Following the policy already applicable in similar cases, the Court permitted deduction of 10% of the premium towards administrative charges.
Accordingly, out of the total premium of ₹30,46,290, the authorities were directed to refund ₹27,41,661.
The Court also found that the authorities had retained the appellants’ money for more than fifteen years without justification.
Although the Maharashtra Regional and Town Planning Act prescribes a higher rate of interest in certain statutory refund situations, the Bench considered that provision inapplicable to the present dispute.
Instead, it directed payment of simple interest at 7% per annum on the refundable amount from the date of deposit until actual payment.
The refund, together with interest, has been directed to be made within two months.
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