Suit For Interest On Wrongfully Retained Earnest Money Not Barred By 6-Month Limitation Under Section 53B DDA Act: Delhi High Court

"DDA cannot take refuge under Section 53B(2) DDA Act to defeat substantive contractual or restitutionary claims which are otherwise within the general limitation period, as per law," Delhi High Court, in a significant ruling, held that a suit seeking interest on earnest money wrongfully retained by the Delhi Development Authority (DDA) is not barred by the shortened six-month limitation period prescribed under Section 53B of the DDA Act.

Justice Neena Bansal Krishna observed that such claims for interest or restitution do not fall within the ambit of "acts done in pursuance of the Act," thereby allowing the respondent-plaintiff to claim interest for a period of over four years during which the DDA held their funds.

The case originated from a 2008 auction where Dr. Fresh Assets Limited (Respondent) was the highest bidder for a plot in Defence Colony, depositing ₹63,12,500 as earnest money. Following a writ petition by local residents challenging the auction, the DDA eventually filed an affidavit conceding to cancel the auction. Despite the cancellation, the DDA refunded only the principal amount in 2013, after a four-year delay, prompting the Respondent to file a suit for recovery of interest.

The primary question before the court was whether a suit for interest on retained earnest money is subject to the six-month limitation period under Section 53B(2) of the DDA Act. The court was also called upon to determine if the DDA was contractually liable to pay interest under its auction terms and whether the plaintiff's intervention in earlier writ proceedings waived their right to interest.

Scope Of Section 53B Of The DDA Act

The court first addressed the DDA’s contention that the suit was time-barred under Section 53B(2) of the DDA Act, which requires suits against the Authority for acts done in pursuance of the Act to be filed within six months. The bench clarified that the recovery of interest on wrongfully retained money is a restitutionary and contractual claim that does not arise from the performance of statutory duties under the DDA Act.

The Court noted that the present suit was not seeking the enforcement of any specific right created under the DDA Act itself. By retaining the earnest money for four years and returning it without interest, the DDA committed a breach that falls under general civil law rather than a protected statutory act.

"A suit seeking damages or interest on the principal amount/earnest money wrongfully retained by DDA does not ipso facto fall under the expression of ‘any act done or purporting to have been done under this Act.’"

Contractual Liability Under Auction Terms

The bench scrutinized Clause 7 of the DDA’s auction advertisement, which explicitly stated that if the DDA withdrew a plot and retained earnest money beyond six months, it would pay interest at 7% per annum. The Court found that the DDA was in breach of its own self-stipulated terms by returning only the principal amount in January 2013.

The DDA’s attempt to rely on contractual silence to avoid liability was rejected. The Court emphasized that since the DDA had acknowledged a contractual obligation to pay interest for retention beyond six months, it could not later claim immunity from such payments.

"The Appellant/DDA did not exclude the liability to pay interest; on the contrary, it acknowledged that where DDA retains the earnest money beyond 06 months, it is contractually bound to pay interest."

Intervention In Writ Proceedings Not A Waiver Of Interest

The DDA argued that the Respondent was not entitled to interest because they had voluntarily intervened in the writ petition filed by residents. The Court dismissed this argument as "misconceived," stating that a successful bidder has a legitimate commercial interest in protecting their bid through impleadment in pending litigation.

The bench observed that the Respondent cannot be penalized for participating in a legal process to protect their commercial stakes. The final cancellation of the auction was a result of the DDA’s own change in stance through an additional affidavit, rather than any default or election on the part of the Respondent.

"The Plaintiff’s participation in the Writ Petition was in its capacity as the successful bidder, seeking to protect its legitimate commercial interest... and not as a volunteer who kept the litigation alive for speculative gain."

Commercial Entities Entitled To Gainful Investment Returns

The Court upheld the Trial Court’s finding that the Respondent, being a commercial entity, would have gainfully utilized the ₹63.12 lakhs in its business had the money not been held up. Consequently, the award of 12% interest for the retention period was deemed justified to compensate for the loss of use of funds.

Regarding the Respondent's cross-objections seeking interest for the period between the refund and the filing of the suit, the Court held that once the entire principal earnest money was refunded on January 29, 2013, there was no further liability on the DDA to pay interest on that specific sum for subsequent periods.

"Once the entire earnest money was admittedly refunded, there is no further liability of the Appellant to pay the interest for the period from the date of return of earnest money till the date of filing of the Suit."

The High Court dismissed the DDA's appeal and upheld the Trial Court's decree awarding 12% per annum interest from the date of deposit until the date of refund, along with 9% future interest. The Court concluded that the DDA's retention of funds for over four years necessitated the payment of interest to prevent unjust enrichment.

Date of Decision: 30 April 2026