Penalty for construction delay is unsustainable where supplementary contracts dispense with time limits for composite development.

The Petitioner (formerly Starlight Systems) leased Plot Nos. R-1.2 and R-1.3 in Bandra-Kurla Complex from the Respondent (MMRDA) via a Lease Deed dated July 27, 2006

Article 2(d) of the Deed required construction completion within four years

During excavation, the Petitioner discovered undisclosed pre-existing underground reinforced cement concrete (RCC) piles from a previous abandoned project

Subsequently, the Respondent increased the permissible FSI and allotted additional built-up area (BUA) to the Petitioner, leading to a Supplementary Lease Deed dated November 5, 2015

Article 5 of this Supplementary Deed stated there was "no time limit" for construction of the additional BUA

The Respondent issued a Demand Notice on September 9, 2014, levying an additional premium/penalty of ₹52.80 crores for delay in completion

The Petitioner paid the amount under protest to obtain occupancy certificates and subsequently challenged the levy via this Writ Petition

1. Whether the Writ Petition is maintainable despite involving a contractual dispute and alleged disputed questions of fact?

2. Whether the Respondent’s failure to disclose material defects (underground piles) and the subsequent Supplementary Lease Deed's "no time limit" clause invalidated the penalty for delay?

3. Whether the Respondent's policy to extend the construction period from four to six years should be applied retrospectively to the Petitioner?

The Court applied Article 14 of the Constitution regarding state arbitrariness

It relied on Section 108(a) of the Transfer of Property Act, 1882, which mandates the lessor to disclose material defects in the property

Under the Indian Contract Act, 1872, the Court applied Section 53 (reciprocal obligations and prevention of performance) and Section 72 (liability of person to whom money is paid under coercion)

The legal maxim Nullus commodum capere potest de injuria sua propria (no man can take advantage of his own wrong) and the "Doctrine of Prevention" were central

The Court also applied the rule of Contra Proferentem, stating ambiguities in a contract are resolved against the drafter

The Court followed the precedent in Raghuleela Builders Pvt. Ltd. v. MMRDA regarding the arbitrary nature of construction timelines

The Court held the petition was maintainable as the Respondent is a "State" instrumentality and its actions possessed a public law character involving Article 14

Regarding the merits, the Court found that MMRDA breached Section 108(a) of the Transfer of Property Act by failing to disclose the underground piles, which significantly delayed excavation; thus, MMRDA could not penalize the Petitioner for delays it partially caused

Article 5 of the Supplementary Lease Deed created an ambiguity by dispensing with the time limit for additional BUA in a "composite construction" project

Applying the rule of Contra Proferentem, this ambiguity was resolved in favor of the Petitioner

The Court also found the penalty recovery violated natural justice as it was adjusted without a prior show-cause notice

Following Raghuleela Builders, the Court determined that MMRDA's refusal to extend the six-year construction window to older leases was discriminatory and lacked "intelligible differentia"

It held that the penalty was realized under coercion and was legally unsustainable given the Respondent's own breaches and the terms of the Supplementary Lease Deed

The Court directed MMRDA to refund ₹52,80,98,641/- to the Petitioner within 90 days

If the Respondent fails to refund the amount within the stipulated period, it shall carry interest at 14% per annum from the date of the order until the date of refund