Supreme Court orders refund of FSI premium, calls denial arbitrary under Article 14
A Bench of Justices Sanjay Kumar and K. Vinod Chandran held that refusing to refund unutilized FSI premium for residential projects, while allowing it for others, violates Article 14.
The Supreme Court has ordered the refund of a premium paid for additional Floor Space Index that landowners in Pune District never used, holding that the authorities’ refusal was arbitrary and discriminatory. The Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran, in a judgment dated 13 July 2026, allowed the appeal of Prasad Pandurang Tapkir and Shakuntala Pandurang Tapkir and set aside a Bombay High Court order that had dismissed their writ petition.
The appellants had paid ₹30,46,290 for extra FSI to develop group housing, then switched to plotting their land without using the additional FSI. When they sought a refund, the authorities refused, citing the absence of any refund provision in the Development Control Regulations. The Court found the State had allowed refunds for other categories of construction and could not deny the appellants the same treatment.
How the dispute reached the Court
The appellants owned agricultural land in Survey No. 103/2/2 of Alandi Taluka, Pune District. They sought to develop it under a scheme for homogenous development in areas adjoining municipal corporation limits, formulated by the Government of Maharashtra. On 25 May 2012, they sought conversion of the land use for group housing construction.
Premium was payable for construction above what the FSI Regulations permitted. On 30 August 2012, the premium was determined and the appellants paid ₹30,46,290. On 8 October 2012, the Sub-Divisional Officer, Khed, Pune, granted permission for conversion and construction.
The appellants then abandoned the group housing plan and sought to plot the land instead. Their application dated 16 December 2013 was accepted by order dated 19 April 2014, which stated that the terms and conditions of the 8 October 2012 order would remain in force.
On 13 August 2015, they applied for a refund of the premium, having not used the extra FSI. The Sub-Divisional Officer, Khed, Pune, wrote to the Assistant Director, Town Planning, on 19 November 2015 recommending the refund, noting that no construction had been undertaken. No action followed, and the appellants filed Writ Petition No. 8586 of 2018. That petition was disposed of on 15 January 2020, directing the authorities to decide the refund request.
The Assistant Director then rejected the plea by order dated 15 February 2020, citing the absence of a refund provision in the Development Control Regulations. The appellants challenged this in Writ Petition No. 9040 of 2021, which a Division Bench of the Bombay High Court dismissed on 17 November 2022, holding that refund was not contemplated in the statutory scheme and that the appellants had themselves relinquished a privilege granted to them.
Delay finding rejected
The High Court had also held against the appellants on delay, treating 2018 as the year of their first petition. The Supreme Court disagreed. It found the appellants sought the refund on 13 August 2015, within three years of the payment made on 30 August 2012. The inaction of the authorities on that request could not be attributed to the appellants as delay on their part.
Shifting stands and “verbal jugglery”
The Court recorded conflicting positions taken by the authorities. The rejection order of 15 February 2020 said refund was unavailable because the appellants had paid for residential construction, whereas the regulations allowed refund only for unutilized FSI linked to educational and medical institutions, institutional buildings and star category hotels.
In a counter affidavit before the Supreme Court, the Assistant Director took a different position, claiming that premium paid for exemption of certain components from FSI computation differed from premium paid to purchase additional FSI, and that the relevant Government Resolutions applied only to the Greater Mumbai area, not Pune District.
The Court rejected this distinction. It found the admitted position was that no construction was undertaken and the payment was for additional FSI. The attempt in the counter affidavit to distinguish between additional FSI and exemption of components was described as “ludicrous,” since the effect of both was extra FSI. The Court also noted that the 8 October 2012 order made no mention of the premium paid for additional FSI, yet its terms were said to bind the appellants for the plotting.
The Court observed that the Development Control Regulations dated 28 August 2009, stated to apply in Pune District, had not been placed on record, nor had earlier directives of 14 December 1998 and 26 June 2006 referenced in the Government Resolution of 14 March 2016. The claim in the counter affidavit therefore could not be tested.
Article 14 and non-arbitrariness
The Court held that when the Government provided for refund of premium for unutilized additional FSI in relation to educational and medical institutions, institutional buildings and star category hotels, the same logic should apply to premium for unutilized FSI for residential construction, whether in Mumbai or elsewhere in Maharashtra. The distinction between Greater Mumbai and the rest of the State was found “patently arbitrary and discriminatory,” given that premium was collected and shared across the State under the directives.
The distinction between the identified buildings and residential construction was held to defy logic, with no reason shown for placing one on a higher pedestal. The refusal was found contrary to fairness, a facet of non-arbitrariness inherent in Article 14.
The Court drew on E.P. Royappa v. State of Tamil Nadu, where a Constitution Bench held equality and arbitrariness to be sworn enemies, and that arbitrary action is implicitly unequal and violative of Article 14. It referred to Kumari Shrilekha Vidyarthi v. State of U.P. on the duty to act fairly even in contractual matters, and to Ajay Hasia v. Khalid Mujib Sehravardi on non-arbitrariness as a golden thread through the Constitution. It also cited Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay and Securities and Exchange Board of India v. Sunil Krishna Khaitan on the reach of Article 14 to State action.
On these principles, the Court found the policy of allowing refunds for the identified constructions while denying it to the appellants “clearly whimsical.” It held the appellants entitled to a refund, subject to a 10% deduction towards administration charges, as applied to the identified buildings.
Interest
On interest, the Court examined Chapter VI-A of the MRTP Act, which deals with development charges. Section 124I, titled ‘Interest on amount of enhanced assessment or of refund’, provides for interest at 18% per annum on amounts refundable following an appeal under Section 124G. The Court held that as the present issue rested on a different foundation, adopting the same rate was not justified.
Order
The Court allowed the appeal and set aside both the Bombay High Court judgment dated 17 November 2022 and the rejection order dated 15 February 2020 passed by the Assistant Director, Town Planning, Pune Branch, Pune.
The appellants were held entitled to a refund of the premium paid towards the unutilized additional FSI, with 10% of ₹30,46,290, that is ₹3,04,629, deductible towards administration charges. The sum of ₹27,41,661 was directed to be refunded with simple interest at 7% per annum from the date of deposit till actual payment, within two months. Pending applications, if any, were disposed of, and parties were directed to bear their own costs.