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TMI Blog2021 (2) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... trumentality, 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 fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only with effect from 14 October 2015. Appeal disposed off. - Civil Appeal No(s).317/2021 - - - Dated:- 17-2-2021 - Hon'ble Dr. Justice D.Y. Chandrachud And Hon'ble Mr. Justice M.R. Shah For Petitioner(s) (Unitech) : Mr. N. Venkataraman ASG, Ms. Anubha Agrawal, AOR, Ms. Ranjeeta Rohatgi, AOR, Ms. Neeha Nagpal, Adv. And Mr. Anuroop Chakravarti, Adv. For the State of Telangana TSIIC : Mr. C.S. Vaidyanathan, Sr. Adv., Mr. S. Udaya Kumar Sagar, AOR, Ms. Sweena Nair, Adv. For Respondent(s) State of Telangana TSIIC : Mr. C.S. Vaidyanathan, Sr. Adv., Mr. S. Udaya Kumar Sagar, AOR, Ms. Sweena Nair, Adv. For the APIIC : Mr. Arup Banerjee, AOR, Mr. R.K. Dey, Adv. For the (Unitech) : Mr. N. Venkataraman, ASG, Ms. Anubha Agrawal, AOR, Mr. Mahesh Agarwal, Adv., For the Mr. Anuroop Chakravarti, Adv., Ms. Neeha Nagpal, Adv., Mr. Anshuman Srivastava, Adv. And Mr. E. C. Agrawala, AOR. JUDGMENT Dr Dhananjaya Y Chandrachud, J A. Background B. Proceedings before this Court C. Salient features of the transaction documents D. Submissions of the parties E. Analysis E.1. Maintainability of the writ petition under Article 226 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 35 crores towards the purchase price of the land was paid on 11 January 2008, while the fifth installment for another ₹ 35 crores was paid on 25 January 2008. Unitech paid, in the above manner, a total amount of ₹ 165 crores: ₹ 140 crores towards the cost of land, ₹ 20 crores towards earnest money deposit and ₹ 5 crores towards project development expenses. 6 On 19 August 2008, a Development Agreement was entered into between APIIC, Unitech and Nacre Gardens Hyderabad Limited, formerly known as (Unitech Hyderabad Township Limited), a special purpose vehicle formed to execute the project. 7 On 29 April 2011, APIIC issued a notice to show cause to Unitech to commence work on the project land. On 11 May 2011, Unitech requested APIIC to intimate, within seven days, the steps being taken to handover the land with reference to the provisions of Article 13.3(b) of the Development Agreement which mandated an encumbrance-free handover. The response to APIIC s show-cause notice dated 29 April 2011 was further re-iterated in Unitech s letter dated 14 May 2011 stating that APIIC would have to first establish its title to the land and to remove the encumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to the land together with interest and damages for the loss suffered by them, which included the cost of borrowing capital from banks, expenses for planning and designing, opportunity costs and other costs for development. 12 On 24 December 2015, Unitech sought a refund of an amount of ₹ 457 crores towards principal and interest. This was followed by reminders on 31 May 2016 and 7 June 2016. An advocate s notice was also issued on 13 June 2016. 13 Initially, invoking the jurisdiction under Article 32 of the Constitution, Unitech filed proceedings before this Court which were disposed on 1 May 2017 [Writ Petition (Civil) No. 302 of 2017 (Supreme Court of India)] by granting liberty to move the High Court under Article 226. A Writ Petition under Article 226 was instituted before the High Court for the State of Telangana [Writ Petition (Civil) No. 29722 of 2017 (Andhra Pradesh High Court)] seeking a refund of ₹ 165 crores together with interest at the SBI Prime Lending Rate ( SBI- PLR ) from the date of payments. By a judgment and order dated 23 October 2018, a Single Judge of the High Court allowed Unitech s Writ Petition. The concluding paragraphs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngle Judge s decision had aligned itself with the line of precedent of this Court; justifiably entertained the writ petition and directed a refund of the consideration. However, the order of the Single Judge directing the payment of interest compounded inter alia at the SBI- PLR from the dates of payment commencing from September 2007 has been modified in terms of the direction requiring the payment of interest at the SBI- PLR from 14 October 2015. In taking this view, the Division Bench held: (i) Under the LoA dated 28 November 2007, Unitech was put to notice that the award of the contract was subject to the outcome of a litigation which was pending before the High Court; (ii) Even the advertisement for the award of the contract indicated that it would be subject to the outcome of a first appeal which was pending before the High Court; (iii) Unitech accepted the award of the contract on 3 December 2007 and made its payments between September 2007 and January 2008; (iv) The release of the earnest money deposit was sought on 2 April 2015 and a refund of the entire amount paid with interest, was claimed for the first time on 14 October 2015, after the judgment of the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 which provides as follows: 68. Provisions for various companies and corporations:- (1) The companies and corporations specified in the Ninth Schedule constituted for the existing State of Andhra Pradesh shall, on and from the appointed day, continue to function in those areas in respect of which they were functioning immediately before that day, subject to the provisions of this section. (2) The assets, rights and liabilities of the companies and corporations referred to in sub-section (1) shall be apportioned between the successor States in the manner provided in section 53. Section 71 contains the following provision: 71. Certain provisions for companies:- Notwithstanding anything in this Part, the Central Government may, for each of the companies specified in the Ninth Schedule to this Act, issue directions (a) regarding the division of the interests and shares of the existing State of Andhra Pradesh in the Company between the successor States; (b) requiring the reconstitution of the Board of Directors of the Company so as to give adequate representation to the successor States. APIIC has been listed at Entry 17 of the Ninth Schedule to the Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising out of the three proceedings under Article 136 of the Constitution have been heard together since they arise out of common facts and the same transaction. C. Salient features of the transaction documents 20 Before dealing with the rival submissions, it is necessary to preface our analysis with a reference to the salient aspects of the transaction, leading to the award of the contract and the execution of the Development Agreement between APIIC and Unitech. 21 On 28 November 2007, the LoA was issued by APIIC to Unitech for the development of an integrated airport township / multi services aerospace park, Hyderabad on a public-private-partnership basis. Clause 3 of the LoA contemplated the payment of an amount of ₹ 140 crores towards the value of the land, payable in four tranches each of ₹ 35 crores. Clause 3 of the LoA was in the following terms: 3. Total Purchase Price. The Total Purchase Price for the Total Land shall be ₹ 140 crores (Rupees one hundred and forty crores only). The value of the land is fixed at ₹ 40 Lakhs per acre (Rupees Forty Lakhs per acre) and payable to APIIC as follows: (i) ₹ 35 Crores (Rs. Thirty Fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llage to APIIC, and APIIC is authorised- to transfer (on an outright sale basis) and deliver the Project Site measuring Acres 350-00 Guntas to the Developer. (ii) APIIC covenanted to transfer and sell the land together with its rights, title and interest free from all encumbrances by executing a sale deed in favour of Unitech: G) APIIC shall sell and transfer the Land absolutely, together with all rights, title, interest and benefits belonging thereto/ connected therewith (but free of all Encumbrances), by executing a Sale Deed in favour of the Developer. 23 (i) Article 1 contained definitions inter alia of the following expressions: h) Applicable Rate means the prime lending rate of the State Bank of India, compounded annually. l) Compensatory Payment with reference to all or any portion of the Project Site (the Compensated Land ) as on a particular date (the Reference Date ) for the purposes of this Agreement including for the purposes of Clauses-14.3.1, 14.3.2, 17.6 and 23.3 hereof shall mean an amount equal to the sum aggregate of the following: (i) The Total Purchase Price in respect of the Compensated Land until the Reference Date, as per the audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allment of the total purchase price, APIIC was required to handover to the developer: (a) Ownership and title documents to the land; (b) A certified copy of the government order evidencing its ownership rights over the land together with a possession certificate issued by the revenue department; and (c) A declaration certifying that APIIC is the rightful owner of the land which was in its possession. (vii) Article 13.3 provided for the obligations of APIIC in the following terms: 13.3 Obligations of APIIC: For the purpose of this Agreement, each of the following shall be the Significant APIIC Obligations of APIIC; a) to execute the Sale Deed within' the specified time frame, any contracts / document as may be required in accordance with the terms of this Agreement for raising of any finances in relation to the Project, and other documents with the mutual consent of the parties as may be required to be executed for the Project; (b) to handover the Land as specified in this Agreement without any Encumbrances and with the right of way for the purpose of Development by the Developer. (c) to clear any Encumbrances in respect of any portion of the Projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Court , unlawful or un-authorised or without jurisdiction revocation of or refusal to renew or grant without valid cause any consent or approval required by the Developer or any of the other Person to perform their respective obligations under the Project Agreements (provided that such delay, modification, denial, refusal or revocation did not result from the Developer s or any of its contractor s inability or failure to comply with any condition relating to grant, maintenance or renewal of such consents or permits), or events of similar nature, in each case which materially affect the implementation of the Project. (emphasis supplied) (xi) Article 17.6 stipulates that in the event of a political force majeure event continuously impacting upon the project as a material adverse effect for over nine months, the developer would be entitled to issue a notice of termination. Upon such termination, APIIC was required to pay the compensatory payment to the developer: 17.6 Termination: Either party to this Agreement may issue a notice of termination of this Agreement if a Non-Political Force Majeure Event (or its direct impact) has resulted in Material Adverse Effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 9 October 2015, the developer became entitled to a refund of the amounts paid together with interest compounded annually at the SBI-PLR; (f) The existence of an arbitration clause would not divest the High Court of its jurisdiction under Article 226 of the Constitution to order refund with interest, where a private developer who has entered into an agreement on a solemn representation of the existence of title in the Government is unable to proceed with the project due to a failure of title; (g) The exercise of the writ jurisdiction under Article 226 in a contractual matter is not ruled out particularly in the present case where there is absolutely no dispute in regard to the basic facts; (h) The Single Judge of the High Court had justifiably awarded interest from the date of the first payment by Unitech in 2007. The Division Bench erred in restricting the grant of interest from 14 October 2015; (i) The litigation in regard to the title of the Government of Andhra Pradesh had nothing to do with the moneys paid by Unitech. When the moneys were paid in 2007, the refund of the amount must date back with reference to the date of the initial payment. Therefore, the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest cannot be imposed on TSIIC alone. TSIIC argues that the liability to refund the principal sum together with interest to Unitech has to be apportioned between TSIIC and APIIC in terms of the provisions contained in the Andhra Pradesh Reorganization Act 2014. The submission is elaborated along the following lines: (i) TSIIC has deposited an amount of ₹ 127.53 crores before this Court in pursuance of the interim order dated 5 March 2020, out of which ₹ 69.30 crores represents the principal and ₹ 58.23 crores is towards interest; (ii) Section 68 of the Reorganization Act stipulates that the companies specified in the IXth Schedule (including APSIIC) constituted for the erstwhile State of Andhra Pradesh would continue to function in those areas in respect of which they were functioning immediately before the date of re-organization. Under sub-section(2) of Section 68, the assets, rights and liabilities of the companies forming a part of the IXth Schedule are required to be apportioned between the successor states, in the manner indicated in Section 53; (iii) Under Section 71, the Central Government is empowered to issue directions in respect of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lucidates that the project site which forms the subject matter of the Development Agreement was a part of the area which falls within the jurisdiction of TSIIC. The liability by the terms of the demerger scheme is that of TSIIC. 30 The Special Leave Petition [SLP (C) No. 10135 of 2019] which was filed before this Court by TSIIC raised several objections to the correctness of the order passed by the High Court. Among the grounds which were urged in support of the Special Leave Petition were the following: (i) The High Court ought not to have entertained a writ petition under Article 226 of the Constitution in a pure contractual dispute ; (ii) The Development Agreement contains an arbitration agreement in Article 23.1; (iii) TSIIC can provide the land to Unitech and hence a direction for refund with interest ought not to have been given; (iv) There was a violation by Unitech of the terms of the bid document and the LoA and the Development Agreement deviated from the bid and the LoA; (v) Unitech bid for the project and accepted the LoA with full knowledge of the pending litigation over title to the land forming a part of the agreement, and agreed to await the ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tels (P) Ltd, (1983) 3 SCC 379; Gunwant Kaur v. Municipal Committee, Bhatinda, (1969) 3 SCC 769] to conclude that writs under Article 226 are maintainable for asserting contractual rights against the state, or its instrumentalities, as defined under Article 12 of the Indian Constitution. Speaking through Justice N Santosh Hegde, the Court held: 27. the following legal principles emerge as to the maintainability of a writ petition: (a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable. (b) Merely because some disputed questions of fact arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule. (c) A writ petition involving a consequential relief of monetary claim is also maintainable. This exposition has been followed by this Court, and has been adopted by three-judge Bench decisions of this Court in State of UP v. Sudhir Kumar [2020 Scconline SC 847] and Popatrao Vynkatrao Patil v. State of Maharashtra [Civil Appeal 1600 of 2000 (Supreme Court of India)] . The decision in ABL International, cautio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. In determining as to whether the jurisdiction should be exercised in a contractual dispute, the Court must, undoubtedly eschew, disputed questions of fact which would depend upon an evidentiary determination requiring a trial. But equally, 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement was postulated on the availability of the land. Apart from the terms of the agreement which have already been emphasized, representations in regard to the title to the land are expressly contained in Annexure 1C of the Development Agreement which reads as follows: APIIC hereby represents and warrants to the Developer and Unitech that: 1. APIIC is absolutely seized and possessed of and is otherwise well and sufficiently entitled to the Project site. GOAP has free clear and marketable titled to the Project site, and that no Encumbrance of any nature whatsoever exists in respect of the Project site. APIIC was in possession and occupation of the Project site until the date of execution of the Development Agreement and that peaceful physical vacant possession and occupation of the Project site has been handed over to the Developer in terms of the Development Agreement. APIIC has been duly authorized to enter into the Development Agreement and perform all of its obligations there under . Annexure-2 to the Development Agreement sets out a list of ownership documents which are tabulated in the following terms: 35 The consequences of default are expressly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment of Andhra Pradesh/TSIIC to convey full title to the developer forms the basis of the contract. The failure of title entitles Unitech to claim a full refund together with compensatory payment, as contractually defined. The claim does not raise a disputed question of fact requiring an evidentiary determination. Both the learned Single Judge and the Division Bench of the High Court have elaborately considered the precedents of this Court and correctly concluded that Unitech is entitled to a refund. The finding in regard to the entitlement of Unitech to a refund is unexceptionable and has correctly not been called into question at the stage of the hearing, despite the grounds which were raised in the pleadings in the proceedings initiated under Article 136 of the Constitution by TSIIC and the State of Telangana. APIIC, as an instrumentality of the erstwhile Government of Andhra Pradesh, invited bids for a public project. Having invited private entrepreneurs to submit bids on stipulated terms and conditions, it must be held down to make good its representations. The State and its instrumentalities are duty bound to act fairly under Article 14 of the Constitution. They cannot, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t . Moreover, the date from which compensatory payment has to be made is specifically provided : the Development Agreement provides that it will be from the date on which the first payment of project price is made. The Division Bench was in error in curtailing the right of Unitech to claim a refund with effect from the dates on which the respective payments were made. Obviously, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al agreement is in the nature of a penalty has to be determined by the court against the background of various relevant factors, such as the character of the transaction and its special nature, if any, the relative situation of the parties, the rights and obligations accruing from such a transaction under the general law and the intention of the parties in incorporating in the contract the particular stipulation which is contended to be penal in nature. If on such a comprehensive consideration, the court finds that the real purpose for which the stipulation was incorporated in the contract was that by reason of its burdensome or oppressive character it may operate in terrorem over the promiser so as to drive him to fulfil the contract,, then the provision will be held to be one by way of penalty. Therefore, 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, we find that the interest rate is payable to Unitech, without compounding. E.3 Apportionment of the liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in physical form on mutual agreement or by making payment or adjustment through any other mode as may be agreed to by the successor States. 41 Section 65 [ 65. Where the successor States of Andhra Pradesh and Telangana agree that the benefit or burden of any particular asset or liability should be apportioned between them in a manner other than that provided for in the foregoing provisions of this Part, notwithstanding anything contained therein, the benefit or burden of that asset or liability shall be apportioned in the manner agreed upon. ] allows for the successor states of Telangana and Andhra Pradesh to agree on the manner in which the benefit or burden of any particular asset or liability can be apportioned. Section 66 [ 66. Where, by virtue of any of the provisions of this Part, either of the successor States of Andhra Pradesh and Telangana becomes entitled to any property or obtains any benefits or becomes subject to any liability, and the Central Government is of opinion, on a reference made within a period of three years from the appointed day by either of the States, that it is just and equitable that such property or those benefits should be transferred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggestions and advices given by Expert Committee with respect to Demerger of Assets and Liabilities have been complied with in formulating the final Demerger Scheme. E.V. Narasimha Reddy K.V. Satyanarayana, IAS Vice Chairman Vice Chairman Managing Director (FAC) Managing Director TSIIC Ltd.. APIIC Ltd., 42 The Scheme for apportionment/demerger has also been produced by APIIC in the course of the pleadings. Para 1 of Section 1 Part II of the Scheme is in the following terms: 1. Upon the coming into effect of the Scheme and with effect from the Appointed Date and subject to this Scheme, all the operational Units of the Demerged Undertaking (including all the estate, assets, rights, title, interest and authorities including accretions and appur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch. It is well-settled law that the Stamp Act is a fiscal measure enacted to secure the revenue for the State, and not to arm the opponent with a weapon of technicality [Hindustan Steel Limited v. Dilip Construction Company, (1969) 1 SCC 597 para 7] . Unitech s claim to compensatory payment cannot be defeated on the sole ground of the payment of stamp duty. The Development Agreement shall have to be impounded and be presented to the Chief Controlling Revenue Authority in the State of Telangana for assessment of stamp duty and to the competent authority for registration. The assessment shall be completed within thirty days. The appropriate stamp duty and registration charges liable to be paid in terms of the determination shall be paid by TSIIC and be deducted from the refund due and payable to Unitech under the terms of this order. 45 For the above reasons, the appeals shall stand disposed of in the following terms: (i) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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