2021 (2) TMI 1181 - SC - Indian Laws

Maintainability of the writ petition under Article 226 - Contractual right to compensatory payment - Apportionment of the liabilities between the instrumentalities of the state of Andhra Pradesh and Telangana - HELD THAT - It is well-settled that the jurisdiction under Article 226 cannot be ousted only on the basis that the dispute pertains to the contractual arena. This is for the simple reason that the State and its instrumentalities are not exempt from the duty to act fairly merely because in their business dealings they have entered into the realm of contract. Similarly, the presence of an arbitration clause does oust the jurisdiction under Article 226 in all cases though, it still needs to be decided from case to case as to whether recourse to a public law remedy can justifiably be invoked. The jurisdiction under Article 226 was rightly invoked by the Single Judge and the Division Bench of the Andhra Pradesh in this case, when the foundational representation of the contract has failed. TSIIC, a state instrumentality, has not just reneged on its contractual obligation, but hoarded the refund of the principal and interest on the consideration that was paid by Unitech over a decade ago. It does not dispute the entitlement of Unitech to the refund of its principal. Contractual right to compensatory payment - HELD THAT - Unitech had entered into the project since it wished to pursue it. Unitech cannot be penalized for wanting to continue with the agreement, as APIIC navigated disputes over its claim to the land. While Unitech was put to notice of the existence of a litigation, the Development Agreement which stipulated an encumbrance-free handover also specified that its covenants would supersede all other understandings and that its terms would rank as the first, in order of interpretive priority. The judgment of the Division Bench suffers from a clear and patent error in restricting the liability of paying interest with effect from 14 October 2015. The liability must date back, in terms of the Development Agreement, from the date on which the respective payments were made by Unitech. Interest at the contractual SBI-PLR rate has to be paid to Unitech. However, considering the facts and circumstances of this case, the conscionability of Article 14.3.1 read with Article 1(h) of the Development Agreement stipulating compensatory payment at the SBI-PLR, compounded annually , becomes suspect. In a similar vein, in interpreting Section 74 of the Indian Contract Act, 1872, this Court has held that a contractually-stipulated interest rate, if found to be penal, excessive or in terrorem can be reduced to a reasonable rate of compensation - considering the position of Unitech-which knowingly entered into the Development Agreement with full knowledge of the pending litigation and with an intention to continue with the project after a delay of over seven years, up until a decision by this Court, it is found that the interest rate is payable to Unitech, without compounding. Apportionment of the liabilities between the instrumentalities of the state of Andhra Pradesh and Telangana - HELD THAT - Schedule I provides for the Zonal offices pertaining to Telangana region. Serial no.3 refers to the Shamshabad and Mauli Ali region which includes the area covered by the project site. The land which is comprised in the project site falls exclusively within the Telangana region as specified in the demerger scheme - following the course of action which has been adopted by the learned Single Judge, we are not adjudicating finally upon the rights inter se between TSIIC and APIIC. TSIIC shall refund the amounts due and payable to Unitech in terms of the present judgment. TSIIC would be at liberty to pursue its rights and remedies in accordance with law over its claim for apportionment on which, we express no final opinion. The Development Agreement stands impounded and shall be forwarded by TSIIC within two weeks to the competent authority for registration and for assessment of stamp duty. The assessment to stamp duty and formalities for registration shall be completed within one month. The amount payable towards stamp duty, penalty (if any) and registration charges shall be paid initially by TSIIC into the account of the competent authority within two weeks of the determination and shall be adjusted against the refund payable by TSIIC to Unitech - The appeal filed by Unitech, arising out of SLP(C) No 9019 of 2019 is allowed in part by setting aside the direction of the Division Bench of the High Court which confined the liability to pay interest only with effect from 14 October 2015. Appeal disposed off.

Summary

Issues Involved:
1. Maintainability of the writ petition under Article 226.
2. Contractual right to compensatory payment.
3. Apportionment of the liabilities between the instrumentalities of the state of Andhra Pradesh and Telangana.

Issue-wise Detailed Analysis:

E.1. Maintainability of the writ petition under Article 226
The court affirmed that recourse to jurisdiction under Article 226 of the Constitution is not excluded in contractual matters. The judgment in ABL International Ltd. v. Export Credit Guarantee Corporation of India [(2004) 3 SCC 553] was cited to support the position that writs under Article 226 are maintainable for asserting contractual rights against the state or its instrumentalities. The court emphasized that the jurisdiction under Article 226 is a valuable constitutional safeguard against arbitrary exercise of state power. The presence of an arbitration clause does not oust the jurisdiction under Article 226 in all cases, especially where the state instrumentality has violated its constitutional mandate under Article 14 to act fairly and reasonably. The court held that the writ petition was rightly invoked by the Single Judge and the Division Bench of the Andhra Pradesh High Court in this case.

E.2. Contractual right to compensatory payment
The court analyzed the terms of the Development Agreement between APIIC and Unitech, which contained specific representations that APIIC was authorized to transfer and deliver the project site. The agreement mandated that APIIC was to sell and transfer the land free from all encumbrances upon payment of the last installment of the purchase price by Unitech. The failure of title in the erstwhile APIIC and the Government of Andhra Pradesh was confirmed by the judgment of this Court in State of Andhra Pradesh Through Principal Secretary v. Pratap Karan [(2016) 2 SCC 82]. The court held that the failure of title entitles Unitech to claim a full refund together with compensatory payment as contractually defined. The court found that the Division Bench of the High Court erred in restricting the liability of paying interest from 14 October 2015. The liability must date back, in terms of the Development Agreement, from the date on which the respective payments were made by Unitech. However, the court found that the interest rate stipulated in the Development Agreement, compounded annually, was excessive and held that interest is payable without compounding.

E.3. Apportionment of the liabilities between the instrumentalities of the state of Andhra Pradesh and Telangana
The court examined the provisions of the Andhra Pradesh Reorganization Act, 2014, particularly Sections 68, 53, 65, 66, and 71. It noted that the assets and liabilities of APIIC were to be apportioned between the successor states of Andhra Pradesh and Telangana. The court referred to a certificate issued by the Managing Directors of TSIIC and APIIC, which recorded the auditing of assets and liabilities as on 1 June 2014. The Scheme for apportionment/demerger indicated that the liability in respect of the dues payable to Unitech was to be borne by TSIIC. The court clarified that it was not adjudicating finally upon the rights inter se between TSIIC and APIIC. TSIIC was directed to refund the amounts due and payable to Unitech, and it would be at liberty to pursue its rights and remedies in accordance with law over its claim for apportionment.

F. Summation
The court addressed the issue of the Development Agreement not being registered or assessed to stamp duty. It held that Unitech’s claim to compensatory payment could not be defeated on the sole ground of the payment of stamp duty. The Development Agreement was to be impounded and presented to the Chief Controlling Revenue Authority in the State of Telangana for assessment of stamp duty and registration. The appropriate stamp duty and registration charges were to be paid by TSIIC and deducted from the refund due to Unitech.

Final Orders:
1. The Development Agreement was impounded and was to be forwarded by TSIIC for registration and assessment of stamp duty.
2. The appeal by Unitech was allowed in part, setting aside the Division Bench's direction that confined the liability to pay interest from 14 October 2015.
3. Unitech was entitled to a refund of ?165 crores with interest at the SBI-PLR from the respective dates of payment, computed without compounding.
4. The amount deposited in the Registry of the Court was to be disbursed to Unitech, and the balance was to be refunded by TSIIC within two months.
5. TSIIC was at liberty to pursue its remedies for apportionment in relation to APIIC in accordance with law.

The appeals arising out of the Special Leave Petitions filed by the State of Telangana and TSIIC were disposed of in terms of the present judgment, with no order as to costs. Pending applications were also disposed of.