In a significant ruling on May 30, 2025, the Supreme Court of India dismissed appeals by the Kamla Nehru Memorial Trust (KNMT) challenging the cancellation of a 125-acre land allotment by the Uttar Pradesh State Industrial Development Corporation (UPSIDC). The judgment in Kamla Nehru Memorial Trust & Another v/s U.P. State Industrial Development Corporation Limited & Others underscored the principle of adherence to contractual terms and dismissed arguments of contract frustration by the public entity.
Background of the Dispute:
The case originated from an allotment of 125 acres of land in the Utelwa Industrial Area, Jagdishpur, Uttar Pradesh, to KNMT, a charitable trust, for floriculture purposes. KNMT applied in July 2003, depositing earnest money, and UPSIDC swiftly allotted the land via a letter dated September 18, 2003. The allotment was conditional, requiring KNMT to deposit a reservation amount (approximately 10% of the total premium) by October 18, 2003, and the remaining 90% in eight half-yearly installments starting January 1, 2006, with 15% annual interest on the outstanding balance. Failure to comply would result in automatic cancellation and forfeiture of earnest money.
A Chronology of Defaults and Contentions:
From the outset, KNMT faced challenges and alleged issues. They claimed the land was encroached and sought demarcation. Simultaneously, KNMT defaulted on the initial reservation money payment, leading UPSIDC to grant an extension, with a strict warning of automatic cancellation upon non-compliance. Though KNMT eventually deposited the amount with interest, it consistently sought waivers on the interest and complained about non-demarcation and non-delivery of physical possession, citing alleged encroachments.
UPSIDC, in response, reiterated that possession could only be handed over after the execution of the lease deed, which required KNMT to furnish necessary documents and make payments. Despite UPSIDC rescheduling payments in July 2005 to accommodate KNMT , the Trust failed to adhere to the revised schedule as well. This led to a series of notices from UPSIDC demanding payment, culminating in a final notice on November 13, 2006, stipulating a 10-day deadline before cancellation.
Aggrieved by the eventual cancellation order dated January 15, 2007, KNMT approached the High Court. While the High Court initially directed restoration of the allotment in 2009 , this order was later set aside by the Supreme Court, which remitted the case back to the High Court for a decision on merits. The High Court subsequently upheld the cancellation, citing KNMT's failure to adhere to the payment schedule and the validity of UPSIDC's adherence to its manual.
Arguments Before the Supreme Court:
KNMT's Arguments: The Trust contended that UPSIDC was responsible for frustrating the contract by failing to provide physical possession, demarcate the land, and remove alleged encroachments. They also argued that the cancellation was procedurally flawed because UPSIDC issued only one final notice instead of the three consecutive legal notices stipulated in Clause 3.04(vii) of UPSIDC's Manual for Marketing and Management of Industrial Areas.
UPSIDC's Counter-Arguments: UPSIDC maintained that KNMT consistently delayed payments for over six years. They asserted that the procedure outlined in the Manual was adhered to through multiple notices issued from December 2004 to November 2006. Furthermore, UPSIDC argued that the land was allotted on an "as is where is" basis and that they had already demarcated the land to KNMT's satisfaction in March 2005, which KNMT acknowledged. UPSIDC's policy required the lease deed to be executed before possession could be handed over, and KNMT's failure to submit necessary documents was the reason for non-delivery of possession.
Supreme Court's Analysis and Verdict:
The Supreme Court examined two primary issues: whether UPSIDC frustrated the contract and whether the cancellation was procedurally defective.
On the issue of contract frustration, the Court meticulously reviewed KNMT's claims regarding non-demarcation, encroachment, and non-delivery of possession. The Court found KNMT's allegations of non-demarcation to be an "afterthought," noting that the allotment letter itself contained precise measurements and that UPSIDC had, in fact, demarcated the land to KNMT's satisfaction in March 2005. Regarding encroachments, the Court accepted UPSIDC's documented proof of land acquisition and compensation payments, deeming the allegation "devoid of any merit". Critically, the Court affirmed that UPSIDC was obligated to hand over possession only after the registration of the lease deed, as per its manual. Since KNMT failed to furnish the necessary documents for lease deed registration, the Court concluded that KNMT was "itself to blame for the non-delivery of possession". The Court ultimately found that UPSIDC acted in accordance with prescribed procedures, and KNMT's arguments for contract frustration crumbled.
Regarding the procedural legality of the cancellation, the Supreme Court analyzed Clause 3.04(vii) of the Manual, which requires three consecutive legal notices to defaulters. The Court examined the various notices issued by UPSIDC and found that the Corporation had, in fact, provided ample opportunities and notices to KNMT.
Based on its comprehensive analysis, the Supreme Court found no error in the High Court's decision to uphold the cancellation of allotment. The Court dismissed KNMT's appeals.
This ruling reinforces the importance of allottees diligently adhering to the terms and conditions of land allotments, particularly payment schedules and procedural requirements like lease deed execution. It clarifies that public authorities like UPSIDC are generally not deemed to have frustrated contracts when allottees fail to meet their reciprocal obligations, especially when procedures are clearly laid out and opportunities for compliance are provided.
