DDA Liable for Compound Interest on Refund Amounts Retained Following Allotment Cancellation Due to Statutory Errors.

The Appellant (DDA) conducted an online auction for two shops in Laxmi Nagar, Delhi

The Respondent was declared the highest bidder and deposited the full consideration amount of approximately ₹60 lakhs following the issuance of Demand-cum-Allotment Letters in October 2019

In December 2020, the Appellant cancelled the allotment, citing its own administrative error in miscalculating the reserve price under the wrong Circle Rate category

The Appellant requested bank details for a refund, which the Respondent did not provide, instead filing a Writ Petition seeking possession

The learned Single Judge ordered the DDA to refund the amounts with interest at 18% p.a. for the first 30 days and 25% p.a. thereafter

1. Whether the Appellant is liable to pay interest at the rates of 18% and 25% p.a. for the entire period the deposited amounts were retained following a cancellation caused by the Appellant's own administrative error

2. Whether the limitation of interest to a maximum period of 60 days, as per Clause 8 of the Auction Terms, applies to refunds necessitated by the vendor's error

The Court applied Clause 8 of the Auction Terms and Conditions, which establishes a benchmark for interest rates (18% for delays up to 30 days and 25% for delays exceeding 30 days) in the context of payment defaults

General principles of equity and restitution, noting that a party cannot legally retain funds after the cancellation of a contract caused by its own fault

Section 5 of the Limitation Act, 1963, and Section 151 of the Code of Civil Procedure, 1908, regarding the condonation of delay in filing the appeal

The Court observed that the cancellation was solely due to the Appellant’s "administrative error" and not any default by the Respondent

Although the Respondent did not provide bank details for the refund, the Court reasoned that once the Writ Petition was instituted, the Appellant should have mitigated its liability by depositing the funds in an interest-bearing account with the court rather than retaining them

The Court rejected the Appellant’s argument that interest should be capped at 60 days, clarifying that the 60-day limit in Clause 8 refers to extensions granted to bidders for payment and does not apply to the period during which the DDA improperly retains money after a self-initiated cancellation

Consequently, Clause 8 was used as a reasonable "benchmark" to compensate the Respondent for the loss of use of his capital

The Court dismissed the appeal and upheld the Single Judge's order, concluding that the public exchequer’s interest does not override the private right to compensation when the loss arises from the state’s own negligence