Introduction:

In Prasad Pandurang Tapkir and Another v. The Assistant Director of Town Planning, Pune District, Pune and Others [2026 LiveLaw (SC) 731], the Supreme Court reaffirmed that the State cannot retain money without legal justification merely because the governing regulations do not expressly provide for a refund. A Bench comprising Justice Sanjay Kumar and Justice K. Vinod Chandran held that denying a refund of the premium paid for unutilised additional Floor Space Index (FSI) to residential housing projects, while granting similar relief to educational institutions, medical institutions and star-category hotels, was arbitrary and violative of Article 14 of the Constitution.

The appellants owned agricultural land in Pune and, in 2012, obtained approval for a group housing project after paying ₹30,46,290 as premium for additional FSI under the Maharashtra Regional and Town Planning Act, 1966. Before utilising the additional FSI, they abandoned the housing project and obtained permission to develop the land through plotting. Since the additional FSI remained unused, they sought a refund of the premium. Their request was rejected on the ground that the Development Control Regulations did not provide for such a refund. The Bombay High Court upheld the rejection, leading the appellants to approach the Supreme Court.

Arguments of the Parties:

The appellants argued that the State had unjustly retained the premium despite the additional FSI never being utilised. They contended that there was no rational basis for refusing a refund to residential projects when the Government itself had framed policies permitting refunds of unutilised FSI premiums for educational institutions, medical institutions, institutional buildings and star-category hotels. Such differential treatment, they submitted, violated Article 14 as similarly situated persons were treated unequally without any reasonable classification.

The appellants further argued that the absence of an express provision for refund could not authorise the State to enrich itself unfairly. They maintained that the purpose for which the premium had been paid had completely failed because the sanctioned FSI was never used. Consequently, retaining the amount amounted to arbitrary State action contrary to the constitutional guarantee of fairness.

The State authorities defended the rejection by relying upon the Development Control Regulations, which did not specifically provide for refund of premium in residential projects. They also argued that the appellants had voluntarily abandoned the housing project after obtaining approval and therefore could not claim reimbursement. The authorities further relied upon the findings of the Bombay High Court that the refund application had been made after considerable delay.

Court’s Judgment:

Allowing the appeal, the Supreme Court held that the State’s refusal to refund the premium was arbitrary, discriminatory and contrary to the constitutional mandate of equality. The Court observed that once the Government had accepted the principle of refund for unutilised additional FSI in certain categories of projects, there was no rational basis for denying the same benefit to residential developments.

The Bench rejected the distinction drawn between educational, medical and institutional buildings on one hand and residential projects on the other, describing it as illogical and unsupported by any reasonable justification. It also found no valid basis for treating projects in Mumbai differently from those in the rest of Maharashtra regarding refunds of unutilised FSI premium.

The Court emphasised that Article 14 embodies not only equality but also fairness and non-arbitrariness in every State action. Administrative decisions cannot be sustained merely because they are not expressly prohibited by statute. If a policy results in unreasonable discrimination, constitutional courts are duty-bound to intervene.

Relying upon the Constitution Bench decision in E.P. Royappa v. State of Tamil Nadu (1974) 4 SCC 3, the Court reiterated that arbitrariness is antithetical to equality. The absence of a statutory provision permitting refund could not justify the State’s retention of money when similarly placed persons had already been granted such relief under existing policy.

The Court concluded that the authorities’ action amounted to “sheer arbitrariness” and that the distinction created between residential projects and other identified categories “defied logic.” It directed the authorities to refund the premium after deducting 10% towards administrative charges, in line with the policy applicable to educational and medical institutions and other specified buildings.

Accordingly, the Supreme Court set aside the Bombay High Court’s judgment and directed the respondents to refund ₹27,41,661, together with simple interest at 7% per annum from the date of deposit until actual payment. The refund was ordered to be made within two months, reinforcing that fairness, equality and non-arbitrariness must guide every action of the State.