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Jurisdiction under A.226 can't be ousted only on basis that dispute pertains to contractual arena:SC

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. (Para 33)

UNITECH Limited & Ors V Telangana State Industrial Infrastructure Corporation (TSIIC) & Ors

Civil Appeal No. 318, 319 of 2021

February 17, 2021

The Hon’ble Supreme Court Justice Dr Dhananjaya Y Chandrachud, MR Shah decided the present appeal arisen out of the Special Leave Petitions filed by the state of telangana and TSIIC. In September 2007, the Andhra Pradesh Industrial Infrastructure Corporation Ltd. (“APIIC”) invited bids to “develop, design and construct” an integrated township project / multi services aerospace park in the area of about 350 acres of land. The bid submitted by Unitech was accepted upon the payment of an earnest money deposited of 20 crores. APIIC issued the Letter of Allotment of the land subject to the outcome of the pending litigation. Unitech started paying whole money through instalments of Rs. 165 crores.

APIIC shall sell and transfer the Land absolutely, together with all rights, title, interest and benefits belonging thereto/ connected therewith, by executing a Sale Deed in favour of the Developer. (Para 22)

A Development Agreement was entered into between APIIC, Unitech and Nacre Gardens Hyderabad Limited. APIIC issued a notice to show cause to Unitech to commence work on the project land. The response to APIIC’s show-cause notice, further re-iterated in Unitech’s letter stating that APIIC would have to first establish its title to the land and to remove the encumbrances, before work could commence. The High Court of Andhra Pradesh in a proceeding titled as Prate Karan v Government of Andhra Pradesh, held that the Government of Andhra Pradesh did not have title to the project land. The Unitech by its communication requested APIIC to clarify the position and to jointly explore possible solutions to the title dispute over the project site.

Retention of the amounts paid by the petitioners by the respondents is against the fundamental principles of justice, equity and good conscience and clearly amounts to unjust enrichment of the respondents particularly when such a retention is arbitrary and also violates Article 14 and 300-A of the Constitution of India. Therefore, the respondents are bound to make restitution of the amounts claimed by petitioners with interest as per SBI Prime Lending Rate as per Clause 14.3.1 r/w Clause 1.1.(l) of the Development Agreement from the date of receipt of the said amount till payment. (Para 61 - Single Judge of the High Court)

Unitech again called APIIC to execute the sales deed. Unitech requested APIIC and TSIIC, on 14 October 2015, to refund all the amounts paid by them with interest calculated at SBI Prime Lending Rate (SBI – PLR). The Single Judge of the Andhra Pradesh High Court, in the course of the judgment dated 23 October 2018 computed as on 30 September 2018, an amount of Rs.660.55 crores as due and payable. In appeal, the Division Bench however directed that the claim for interest should be computed from 14 October 2015.

The court issued a notice in the Special Leave Petition filed by Unitech on 15 April 2019. The Special Leave Petition filed by Unitech limited and its subsidiary, the Court was seized with two other Special Leave Petitions filed by TSIIC and the State of Telangana, respectively.

The learned Additional Solicitor General, appearing on behalf of the management of Unitech, emphasized the following undisputed facts: (i) Title was never conveyed by APIIC to Unitech In terms of the Development Agreement; (ii) By the judgment of this Court dated 9 October 2015, the dispute over the title of the Government of Andhra Pradesh over the project land was conclusively set at rest with a negative finding on title; (iii) An amount of Rs 165 crores has been deposited by Unitech since September 2007 with the Government of Andhra Pradesh; The project cannot be implemented in the absence of title to the lands in the State Government.

The learned d Senior Counsel appeared on behalf of the State of Telangana and TSIIC. At the outset, he has submitted that TSIIC and the State of Telangana do not dispute: (i) The maintainability of a writ petition under Article 226 before the High Court; (ii) The fact that the land comprised within the project site is not available for utilization for the project. The two areas on which the learned Senior Counsel have been confined are: firstly, whether interest at the SBI-PLR and the date from which interest has been awarded by the Division Bench of the High Court are justified; and secondly, whether the High Court was justified in imposing the entire liability to effect the refund on TSIIC.

“This plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction” (Para 28 of ABL International)

While exercising its jurisdiction under Article 226, the Court is entitled to enquire into whether the action of the State or its instrumentalities is arbitrary or unfair and in consequence, in violation of Article 14. 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. The jurisdiction under Article 226 is a valuable constitutional safeguard against an arbitrary exercise of state power or a misuse of authority. 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.

The entitlement of Unitech to a refund of the amounts paid is embodied in the terms of the contract which envisage that a default on the part of APIIC in conveying the land or the existence of political force majeure events would furnish a valid basis for the “compensatory payment”. The court while deciding about the Contractual right to compensatory payment concluded that 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.

The Learned Single Judge have stated that the rights inter se between TSIIC and APIIC were not decided. 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 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; Unitech shall be entitled to a refund of an amount of Rs.165 crores together with interest at the SBI-PLR commencing from the respective dates of payment, computed in accordance with the provisions of the Development Agreement.) The amount which has been deposited in the Registry of this Court in pursuance of the interim order shall be disbursed to Unitech together with accrued interest. The balance due and payable under the terms of this judgment shall be refunded by TSIIC to Unitech within two months from the receipt of a certified copy of this judgment; and In terms of the directions of the Single Judge of the High Court, TSIIC will be at liberty to pursue its remedies for apportionment in relation to APIIC in accordance with law. No opinion is expressed on the merits or tenability of the claim for apportionment asserted by TSIIC.

By considering the reasons stated, the appeal shall stand disposed of.

Shantha Gopika R



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