The Supreme Court has recently held that housing project owners cannot be denied a refund of the premium paid for unutilised additional Floor Space Index (FSI) merely because there is no specific legal provision permitting such a refund. The Court said that when the benefit of refund is extended to educational institutions, medical institutions and star-category hotels, not extending the same to the housing projects is against the principle of right to equality.

The FSI Regulations were framed in exercise of powers under the Maharashtra Regional and Town Planning Act, 1966.

The Court directed the Maharashtra government to refund the premium paid by landowners for additional Floor Space Index (FSI) that was never utilized, holding that the State cannot unjustly retain such amounts merely because the statutory regulations do not expressly provide for a refund. The Court ruled that such a distinction was arbitrary and violative of Article 14 of the Constitution.

The Court found no rational basis for permitting refunds of unutilized additional FSI only for educational, medical and certain commercial projects while denying the same benefit to residential developments.

It held that the distinction drawn by the authorities between different categories of buildings "defies logic" and was "sheer arbitrariness." The Bench further observed that there was no justification for distinguishing between Mumbai and the rest of Maharashtra in matters relating to refund of premium for unused additional FSI.

“The further distinction that has been drawn between additional FSI for educational and medical institutions, institutional buildings and star category hotels as opposed to additional FSI for any other constructions, including residential, equally defies logic. The authorities' decision in this regard does not manifest any reason as to why such benefit should be limited only to those identified buildings and to no other. Their action, therefore, suffers from sheer arbitrariness. That apart, discrimination is writ large on the face of it. Further, the refusal by the authorities to refund the premium paid by the appellants is also contrary to the principle of fairness, a facet of non-arbitrariness, intrinsic to and inherent in Article 14 of the Constitution.”, observed a bench of Justice Sanjay Kumar and Justice K. Vinod Chandran.

The appellants owned agricultural land in Pune district and, in 2012, obtained permission for a group housing project after paying ₹30,46,290 as premium for additional FSI. The requisite permission was granted in October 2012.

However, in 2013, the landowners decided to abandon the residential construction and instead sought permission to develop the land by plotting. The authorities approved the revised proposal in April 2014.

Since the additional FSI for which premium had been paid was never utilized, the appellants sought a refund in August 2015. Their request was rejected, prompting litigation before the Bombay High Court, which held that the Development Control Regulations contained no provision permitting such a refund. The High Court also observed that the appellants had voluntarily chosen not to utilize the FSI and were guilty of delay.

Aggrieved by the High Court's decision, the landowners approached the Supreme Court.

Setting aside the impugned decision, the judgment authored by Justice Sanjay Kumar noted the state authorities' decision to reject the Appellant's plea seeking a refund for a utilised FSI was whimsical and defies logic. Moreover, when other sectors are receiving a benefit of refund, singling out the Appellant's residential projects would be arbitrary, the Court said.

“…when the Government made provision for refund of the premium paid for unutilized additional FSI in relation to educational and medical institutions, institutional buildings and star category hotels in Mumbai, the same logic should apply to premium paid for unutilized FSI for residential constructions, be it in Mumbai or elsewhere in the State of Maharashtra. The effect of both is one and the same and by mere wordplay, the authorities cannot seek to distinguish between the two.”, the Court said, emphasizing that fairness and non-arbitrariness are integral facets of Article 14 and govern every action of the State.

Relying upon the constitutional bench decision of E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 3, the Court observed that the absence of an express statutory provision for refund could not justify arbitrary retention of money by the State.

“The policy of the authorities in permitting refund of the premium paid for unutilized additional FSI in the case of the aforesaid identified constructions while denying such relief to the appellants on the ground that they proposed to put up a group housing project on their land, therefore, defies comprehension and is, thus, clearly whimsical. The distinction drawn in that regard smacks of arbitrariness on the part of the authorities. The appellants would, therefore, be entitled to refund of the premium paid by them for the unutilized additional FSI, subject to deduction of 10% thereof towards administration charges, as was made applicable to the identified buildings under the extant policy.”, the Court held.

Resultantly, the appeal was allowed, with a direction to the authorities to refund ₹27,41,661, after deducting 10% towards administrative charges, together with simple interest at 7% per annum from the date of deposit until actual payment. The refund has been directed to be made within two months.

Cause Title: Prasad Pandurang Tapkir and another versus The Assistant Director of Town Planning, Pune District, Pune and others

Citation : 2026 LiveLaw (SC) 731

Click here to download judgment

Appearance:

For Petitioner(s) : Mr. Sangramsingh R. Bhonsle, Adv. Mr. Swapnil Tingare, Adv. Ms. Samridhi S. Jain, AOR Mr. Nrupal A. Dingankar, Adv. Ms. Pushkara A. Bhonsle, Adv. Mrs. Sneha Bhonsle, Adv. Mr. Chaitanya Dixit, Adv. Mr. Sanmitra Pol, Adv. Mr. Shivam Singh Rathour, Adv. Ms. Shruti Sharma, Adv.

For Respondent(s) : Mr. Bharat Bagla, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR Mr. Shrirang B. Varma, Adv.