State Cannot Retain Money Without Authority of Law: Supreme Court Awards Interest on Stamp Duty Refund

The Supreme Court of India, in a landmark ruling, has held that the state cannot withhold money without the authority of law and directed the Government of NCT to refund Rs. 4,35,968 as interest to Dr. Poornima Advani and her husband on their previously refunded stamp duty of Rs. 28,10,000. The judgment was delivered by a bench comprising Justices J.B. Pardiwala and R. Mahadevan in Civil Appeal No. 2643 of 2025, arising from S.L.P. (Civil) No. 594 of 2020.

Background of the Case

Dr. Poornima Advani and her husband purchased e-stamp paper worth Rs. 28,10,000 on July 6, 2016, for the execution of a sale deed for an immovable property in New Delhi. Due to a delay in finalizing their loan, the sale deed execution was postponed. However, on August 4, 2016, they were informed by their broker that the e-stamp paper had been misplaced. Immediately, they filed a police complaint and published public notices in newspapers.

Subsequently, on August 6, 2016, the appellants purchased fresh e-stamp paper and completed the transaction on August 8, 2016. They applied for a refund of the lost stamp duty on August 11, 2016, submitting an indemnity bond and all necessary documents to the Sub-Divisional Magistrate, Collector of Stamps. However, their application was rejected on October 21, 2016, leading them to file a writ petition in the Delhi High Court.

High Court Proceedings

A single-judge bench of the Delhi High Court ruled in favor of the appellants and ordered the refund of Rs. 28,10,000 on August 20, 2018, but denied interest on the amount. The court reasoned that the State cannot unjustly enrich itself by retaining money when the taxing event did not occur.

Dissatisfied with the denial of interest, the appellants filed a Letters Patent Appeal (LPA) before a division bench of the Delhi High Court, which was dismissed on September 27, 2019. The division bench held that since no argument regarding interest was made before the single judge, it could not be raised for the first time in appeal.

Supreme Court Judgment

The appellants then moved the Supreme Court, arguing that interest should be granted as compensation for the delay in refunding their money. The respondents, represented by Ms. Jyoti Mehandiratta, contended that there was no statutory provision mandating payment of interest.

However, the Supreme Court rejected this argument, emphasizing the principle that money retained without legal authority must be returned with interest. Relying on precedents such as Authorised Officer, Karnataka Bank v. M/s R.M.S. Granites Pvt. Ltd. and Secretary, Irrigation Department, Government of Orissa v. G.C. Roy, the court stated:

“When a person is deprived of the use of his money to which he is legitimately entitled, he has a right to be compensated for such deprivation. The interest is not a penalty but normal accretion on capital.”

The Court further ruled that Article 265 of the Constitution prohibits the retention of money without the authority of law. Since the State had retained the appellants’ money without legal justification for several years, it was obligated to pay interest at 8% per annum.

Key Observations of the Supreme Court

1. Doctrine of Restitution: The Court held that “interest is a necessary corollary of restitution, which mandates that a party who has unjustly retained money must compensate the rightful owner.”
2. Equity and Justice: Citing Black’s Law Dictionary and Stroud’s Judicial Dictionary, the Court observed that “interest is compensation for the use or detention of money that belongs to another person.”
3. State’s Duty to Refund with Interest: The judgment reinforced that “when a government collects money without legal justification, it must return it along with interest.”

Final Order

The Supreme Court directed the Government of NCT to pay Rs. 4,35,968 as interest on the refunded amount within two months. The breakdown of the interest computation was as follows: