No Interest Without Allotment Letter: Allahabad HC Quashes LDA's Demand on 2007 Hotel Plot Auction

The Allahabad High Court's Lucknow Bench held that the Lucknow Development Authority could not levy interest on a successful hotel plot bidder before issuing the allotment letter, quashing nearly two decades of disputed demands.

A Division Bench of the Allahabad High Court, Lucknow Bench, on 15 July 2026 quashed two orders passed by the Lucknow Development Authority — dated 24 December 2024 and 11 April 2025 — which had once again imposed interest on M/s Drosia India Limited from the date of a 2007 hotel plot auction. Justice Alok Mathur and Justice Amitabh Kumar Rai held that the terms and conditions of the auction itself permitted interest only after the allotment letter was issued, and that the Authority's original cancellation of the winning bid had been arbitrary and contrary to State Government policy. The bench directed LDA to pass a fresh order requiring Drosia India to pay strictly as per Clause 10 of the auction terms, and to hand over possession of the plot on compliance.

A Winning Bid Cancelled, Then Revived With Conditions

The Lucknow Development Authority published an auction notice on 21 September 2007 for plots to be used for hotel purposes. M/s Drosia India Limited, a company incorporated under the Companies Act 1956 and engaged in real estate and hospitality, placed the highest bid of Rs 12,050 per square metre against a reserve price of Rs 8,800 per square metre. Eleven bidders participated. No direction was issued asking Drosia India to deposit 35 per cent of the bid amount within seven days as the auction terms required. The company deposited Rs 45 lakhs on 13 October 2007 as earnest money on its own initiative.

By order dated 18 October 2007, LDA cancelled the auction, reasoning that an adjacent commercial plot had fetched Rs 35,500 per square metre and that a fresh auction of the hotel plot might yield a higher price. Drosia India challenged this cancellation before the High Court in Writ Petition No. 8173 (MB) of 2007. The Court stayed the cancellation on 2 November 2007, observing that as per State Government policy dated 22 May 2006, hotel business had been accorded industrial status, and that a commercial plot would naturally attract a higher price than an industrial-rate hotel plot. The cancellation was found prima facie arbitrary.

The writ petition remained pending for years. In July 2015, Drosia India submitted a representation to LDA seeking resolution. The vice-chairman of LDA, by order dated 18 November 2015, agreed to withdraw the cancellation — but conditioned allotment on payment of interest from the date of the auction. The formal communication of 3 December 2015 demanded 50 per cent of the bid amount by 31 December 2015, amounting to Rs 11,65,77,329, with the remaining 50 per cent in four quarterly instalments. A letter of 3 April 2017 computed interest at 15 per cent from 17 November 2007 to 21 March 2017 at Rs 8,57,43,282.

Revision, Remand, and the Impugned Order

Drosia India repeatedly opposed the interest levy, arguing that under Clause 10 of the auction terms, instalments and interest could only commence after the allotment letter was issued. The company deposited a total of Rs 3,71,01,690, more than 50 per cent of the sale consideration, after which the allotment letter dated 3 December 2015 was issued in its favour. Even so, possession of plot TCG-01-A-V 4/1 at Vibhutikhand, Gomtinagar, Lucknow was never handed over.

LDA warned by letter dated 30 December 2021 that the allotment would be cancelled if outstanding dues were not paid. By order dated 11 July 2022, the allotment was cancelled and deposited amounts were refunded with deductions. Drosia India preferred a revision under Section 41(3) of the Uttar Pradesh Urban Planning and Development Act, 1973. While that revision was pending, LDA moved to re-auction the plot. The petitioner filed Writ C No. 5403 of 2022, which was disposed of on 18 August 2022 restraining third-party rights until the interim application in the revision was decided.

The State Government allowed the revision on 26 April 2024. It found that interest could not be levied for the period 2007 to 2015 and that proper opportunity of hearing had not been given. It set aside the LDA orders dated 4 July 2022 and 11 July 2022 and remanded the matter to LDA to determine, afresh and with a hearing, whether any interest was leviable from 2007 to 2015 strictly as per the auction terms.

On remand, LDA passed the order dated 24 December 2024. Rather than confining itself to the remanded question, it again imposed interest from the date of cancellation of allotment to the date of re-allotment — the same period that had been in dispute. A consequential order followed on 11 April 2025. Drosia India challenged both orders in Writ C No. 4180 of 2025. The earlier Writ C No. 13795 of 2020 was pressed simultaneously but was dismissed as infructuous on the company's own submission that subsequent events had rendered it redundant.

The Court's Reasoning on Auction Sanctity and Interest

The bench examined the original cancellation of the bid first, treating it as the source of the entire dispute. It noted that as per Government Order dated 6 February 1997, the highest bid above the reserve price cannot be cancelled unless there is concealment or fraud. The respondents' own subsequent orders acknowledged that 11 bidders had participated, ruling out collusion or fraud. The bench found that the cancellation order of 17/18 October 2007 was arbitrary and illegal.

The bench relied on the Supreme Court's recent judgment in Golden Food Products India v. State of Uttar Pradesh & Others, 2026 INSC 22, which restated that “expectation of a higher bid in a subsequent auction cannot be a reason to cancel an auction held in accordance with law.” In that case, the Supreme Court had also quoted its earlier ruling in Eva Agro Feeds (P) Ltd. v. Punjab National Bank, (2023) 10 SCC 189, that “mere expectation of the Liquidator that a still higher price may be obtained can be no good ground to cancel an otherwise valid auction.”

The bench then turned to the interest question. Clause 10 of the auction notice specified a clear sequence: the highest bidder was to deposit 35 per cent of the bid amount within seven working days of bid acceptance, following which the allotment letter would be issued. A further 15 per cent was payable within one month of the allotment letter. The remaining 50 per cent was to be paid in four instalments of three months each, carrying interest at 15 per cent. Clause 10(b) explicitly stated that instalments would commence only from the date of the allotment letter. Clause 10(c) provided that 18 per cent penal interest would apply only where instalments were not paid within the prescribed time.

The bench found that LDA had not identified any rule or provision that enabled it to levy interest from the date of the auction as opposed to the date of allotment. The impugned order of 24 December 2024 referred only to Clauses I and II of the terms and the compromise dated 15 July 2015, without explaining under which provision interest from 2007 could be justified. The Vice-Chairman had simply followed a note on the file recording that interest should be levied — without independent analysis.

The court rejected LDA's estoppel argument. LDA contended that in Drosia India's representation of 15 July 2015 the company had itself offered to deposit interest. The bench did not accept this as a bar, given the company's consistent subsequent opposition to the demand and the revisional authority's clear finding that the levy was unjustified.

On the question of the Ganpati Constructions precedent cited by Drosia India — where LDA had waived interest for a period when possession had not been given — the bench did not specifically resolve the analogy but reached the same result through the terms of Clause 10 itself: no allotment letter, no interest.

Directions Issued

Having found the original cancellation arbitrary and the interest levy unsupported by the auction terms, the bench issued the following directions:

LDA is directed to pass a fresh order requiring Drosia India to pay the amount for which the bid was made, strictly as per Clause 10 of the terms and conditions of the auction, within one month from the date a certified copy of the judgment is produced before the competent authority.

LDA is directed to comply with the conditions relating to handing over possession of the plot in terms of the auction conditions once payment is made.

Drosia India is placed under a corresponding obligation to pay all dues as per the auction terms. If the company fails to comply with LDA's fresh order, LDA is at liberty to proceed against it strictly in accordance with law, taking due consideration of the terms and conditions of the auction.

Outcome

The Division Bench allowed Writ C No. 4180 of 2025. The impugned orders dated 24 December 2024 and 11 April 2025 were quashed. Writ C No. 13795 of 2020 was dismissed as infructuous on the petitioner's own request. The judgment was reserved on 14 May 2026 and delivered on 15 July 2026.