‘Unjust, Unfair, and Irrational’: Karnataka High Court Orders KIADB to Refund Rs.2.71 Crore with 12% Interest to Power Firm — Says ‘No One Can Profit from Their Own Wrong
Kiran Raj
The Karnataka High Court, Division Bench comprising Justice Anu Sivaraman and Justice Rajesh Rai K, has dismissed an intra-court appeal and upheld a prior directive requiring the Karnataka Industrial Area Development Board (KIADB) to refund Rs.2,71,37,750 to a private power company, with interest at 12% per annum from May 28, 2010, until the date of payment. The Court rejected the appellant’s challenge to a single judge's previous order, concluding that KIADB’s forfeiture of the amount was unjustified and unsupported by the contract terms.
The Court recorded that the appellant-KIADB had failed to discharge its obligations under an agreement entered into for the acquisition and allotment of land for an industrial power project. It further observed that the KIADB’s conduct constituted a breach of contract and affirmed the quashing of two endorsements issued by KIADB that had retained the disputed amount.
The dispute stemmed from an agreement entered into on October 8, 2009, between KIADB and Shree Renuka Energy Limited (now Ravindra Energy Limited) for the acquisition and allotment of 2578.31 acres of land at Vantamuri Village, Belgaum District, for setting up a 1100 Mega Watt Thermal Power Plant and Industrial Park. Following this, the State Government issued a preliminary notification under Section 28(1) of the Karnataka Industrial Area Development Act (KIAD Act) for acquiring approximately 2497 acres.
The State Government granted approval for the project on April 29, 2010, projecting an investment of Rs.5,500 crore and employment for approximately 3,500 persons. The KIADB subsequently assessed the interim value of the land at Rs.3,00,000 per acre and called upon the respondent-company to deposit 40% of the tentative value of the land, which amounted to Rs.17.82 crore. This sum was deposited on May 28, 2010.
Despite this payment, KIADB failed to hand over possession of the agreed land. Respondent No.1 made several representations in October 2010 and October 2011, requesting delivery of at least 236.07 acres of uncontested land, pending resolution of disputes affecting the larger portion. The respondent contended that despite the company’s readiness to commence work, no land was handed over.
KIADB refunded Rs.15.10 crore on November 9, 2012, but retained Rs.2.71 crore. In response to further representations, KIADB issued endorsements on March 18 and June 6, 2013, claiming entitlement to forfeit 25% of the amount related to private land and an additional 15% linked to the preliminary notification.
In challenging the Single Judge's decision to quash these endorsements and order a refund with interest, KIADB argued that under Regulation 8(b) of the Karnataka Industrial Area Development Board Regulations, it was permitted to accept deposits pending allotment and apply forfeiture provisions as per Clause 8 of the agreement.
KIADB contended that the respondent-company was aware of ongoing litigation concerning certain lands and later abandoned the project by seeking a refund. The appellant relied on the Supreme Court's decision in Ferri Alloys Corporation Limited v. A.P. State Electricity Board to argue that no interest was payable in the absence of a specific contractual provision.
The respondent opposed these submissions, asserting that the KIADB had failed to fulfil its contractual obligations by not handing over any portion of the agreed land despite receiving the deposit. The respondent argued that the project was abandoned only due to KIADB's default and that the forfeiture and retention of funds were unlawful and lacked contractual basis.
The respondent relied on several Supreme Court judgments, including ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd. and Unitech Ltd. v. Telangana State Industrial Infrastructure Corpn., to argue that public bodies must act fairly, reasonably, and in accordance with contract law principles.
The Court recorded that the facts established the KIADB’s breach of its contractual obligations. The Bench noted that the KIADB neither handed over the uncontested 236.07 acres nor took effective steps to resolve pending disputes that would enable further land handover.
It observed that the agreement did not contain a clause permitting the forfeiture of 15% of the deposited amount nor justify the forfeiture of 25% for the 11.26 acres of private land. The Court found that the respondent-company had not abandoned the project but had instead been prevented from proceeding due to KIADB’s inaction.
The Court referred to the Single Judge’s findings, quoting, “KIADB which is the statutory authority was not entitled to act in an unreasonable, unjust, unfair and irrational manner in forfeiting the aforesaid sum of Rs.2,71,37,750/- from the petitioner which is neither permissible in law or under the terms of contract.”
On the issue of interest, the Court rejected KIADB's reliance on Clause 11 of the agreement, which exempted interest liability in the event of the State or KIADB dropping acquisition due to unforeseen reasons. The Court recorded, “There are no such unforeseen reasons arising for the appellant and respondent No.2 to drop the acquisition proceedings.”
The Bench further observed, “It is unequivocally established that the appellant was well acquainted with fact that the acquired lands were disputed; the appellant and respondent No.2 were in a position unable to hand over the possession of extent of lands as agreed by them to respondent No.1. Upon receiving huge amount of Rs.17.82 crore their unlawfully retaining Rs.2,71,37,750/- is unjustifiable both legally and factually.”
The Division Bench referred to the Supreme Court’s decision in Municipal Committee Katra v. Ashwani Kumar,Civil Appeal No.(s)1490-71/2017 stating, “A wrong doer ought not to be permitted to make profit out of his own wrong.”
The Division Bench dismissed the appeal, stating, “The Writ Appeal is dismissed being devoid of merits.” The Court confirmed the Single Judge’s direction that KIADB refund the amount of Rs.2,71,37,750/- along with interest at 12% per annum from May 28, 2010, until the date of payment.
Advocates Representing the Parties
For the Appellant: Sri. Ashok Narayan Nayak
For Respondent No.1: Sri. Manmohan P.N.
For Respondent No.2 (State of Karnataka): Smt. G.S. Aruna, HCGP
Case Title: Karnataka Industrial Area Development Board v. Shree Renuka Energy Limited & Anr.
Neutral Citation: 2025:KHC:11459-DB
Case Number: Writ Appeal No.512 of 2021
Bench: Justice Anu Sivaraman and Justice Rajesh Rai K
[Read/Download order]
