UNITECH LIMITED & ORS. versus TELANGANA STATE INDUSTRIAL INFRASTRUCTURE CORPORATION (TSIIC) & ORS.
[2021] 1 S.C.R. 1064, Supreme Court of India, 2021
Outcome: Disposed off
Segment: Body
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   [2021] 1 S.C.R. 1064
1064
UNITECH LIMITED & ORS.
v.
TELANGANA STATE INDUSTRIAL INFRASTRUCTURE
CORPORATION (TSIIC) & ORS.
(Civil Appeal No. 317 of 2021)
FEBRUARY 17, 2021
[DR. DHANANJAYA Y CHANDRACHUD
AND M. R. SHAH, JJ.]
Contract: Tender – APIIC invited bids to develop, design and
construct an integrated township/aerospace park in area of 350
acres of land – Unitech was successful bidder – In LOA, it was
stipulated that the allotment of land was subject to outcome of a
pending litigation – Pursuant to acceptance of LOA, Unitech by
various instalments paid Rs. 165 crores: Rs. 140 towards cost of
land, Rs. 20 crores towards earnest money deposit and Rs. 5 crores
toward project development expenses – On 19.12.2011, decision
was given by High Court in pending litigation in State of Andhra
Pradesh through Principal Secretary v. Pratap Karan that the
Government of Andhra Pradesh did not have title to the project
land – During the years 2012 and 2013, Unitech called upon APIIC
to execute the sale deed, handover the project site and ensure that
the encumbrances on the project land are cleared in terms of
Development Agreement so as to comply with its obligations – The
State of Andhra Pradesh was reorganised w.e.f. 02.06.2014 –
Request was made to newly formed TSIIC (successor of APIIC) to
clarify the status – On 02.04.2015, Unitech sought release of earnest
money deposit of Rs.20 crores in light of full payment of
consideration – On 09.10.2015, Supreme Court in Pratap Karan
case upheld the judgment of the High Court – Thereafter, on
14.10.2015, Unitech requested APIIC and TSIIC, to refund all the
amounts which were received in relation to the land together with
interest and damages for the loss suffered by them – Writ petition
under Art.226 was instituted before the High Court seeking a refund
of Rs 165 crores together with interest at the SBI Prime Lending
Rate (“SBI- PLR”) from the date of payments – A Single Judge of
the High Court allowed Unitech’s Writ Petition – Writ Appeal by
TSIIC and the State of Telangana – The Division Bench of the High
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Court while upholding order of Single Judge on liability of TSIIC
directed refund of the principal sum of Rs 165 crores with interest
from 14.10.2015 at the SBI-PLR, as opposed to the dates of payment
of installments, beginning from September 2007 – Appeal by Unitech
– Held: Under the Development Agreement which was executed
between APIIC and Unitech, APIIC was to transfer the land
absolutely free from all encumbrances by executing a sale agreement
– The terms of the agreement were to prevail in the event of any
conflict with any other document which formed a part of the bidding
process – Thus, the terms of the agreement were placed on the
pedestal of the highest priority for interpretation, as compared to
other documents, including the LoA – Under the terms of the
Development Agreement, APIIC was obligated to sell and transfer
the land together with its right, title and interest free from all
encumbrances “forthwith upon payment of the last installment of
the total purchase price by the developer” – The fulfillment of the
terms of the agreement was postulated on the availability of the
land – The failure of title in the erstwhile APIIC and the Government
of Andhra Pradesh attained finality upon the decision of Supreme
Court – The basic postulate on which the entire contract was
founded stood nullified as a consequence of the failure of title –
The agreement clearly provides that the ability of the Government
of Andhra Pradesh/TSIIC to convey full title
to the developer forms
the basis of the contract – The failure of title entitled Unitech to
claim a full refund together with compensatory payment, as
contractually defined – Further, the Development Agreement provides
that compensatory payment 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 –
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 w.e.f. 14.10.2015 – The liability must date back, in terms of
UNITECH LIMITED & ORS. v. TSIIC & ORS.
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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
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, the interest rate is payable
to Unitech, without compounding.
Andhra Pradesh Reorganization Act, 2014: Apportionment
of the liabilities between the instrumentalities of the State of Andhra
Pradesh and Telangana – The land which is comprised in the project
site falls exclusively within the Telangana region as specified in the
demerger scheme – 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.
Stamp duty: Unstamped agreement – The Development
Agreement, on the basis of which Unitech sought to avail its
contractual remedy has not been registered or assessed to stamp
duty – Under Article 3.1 of the Development Agreement, the
obligation of paying registration fees and stamp duty is on Unitech
– 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
– Unitech’s
claim to compensatory payment cannot be defeated on
the sole ground of the payment of stamp duty – Directions passed to
impound the Development Agreement and present it 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 shall be paid
by TSIIC and be deducted from the refund due and payable to
Unitech under the terms of this order.
Constitution of India: Art.226 – Writ jurisdiction – The
jurisdiction under Art.226 is a valuable constitutional safeguard
against an arbitrary exercise of state power or a misuse of authority
– In determining as to whether jurisdiction should be exercised in a
contractual dispute, the Court must, undoubtedly eschew, disputed
questions of fact which would depend upon an evidentiary
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determination requiring a trial – But equally, it is well-settled that
the jurisdiction under Art.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 Art.226 in
all cases though, it still needs to be decided from case to case as to
whether recourse to public law remedy can justifiably be invoked –
Contract.
Constitution of India: Art.14 – The State and its
instrumentalities are duty bound to act fairly under Art.14 of the
Constitution – They cannot, even in the domain of contract, claim
an exemption from the public law duty to act fairly – The State and
its instrumentalities do not shed either their character or their
obligation to act fairly in their dealings with private parties in the
realm of contract – Investors who respond to the representations
held out by the State while investing in public projects are legitimately
entitled to assert that the representations must be fulfilled and to
enforce compliance with duties which have been contractually
assumed.
Disposing of the appeals, the Court
HELD: 1. Article 23.1 of the Development Agreement in
the present case mandates the parties to resolve their disputes
through an arbitration.
However, the presence of an arbitration
clause within a contract between a state instrumentality and a
private party has not acted as an absolute bar to availing remedies
under Article 226. If the state instrumentality violates its
constitutional mandate under Article 14 to act fairly and
reasonably, relief under the plenary powers of the Article 226 of
the Constitution would lie. 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. The jurisdiction
under Article 226 is a valuable constitutional safeguard against
an arbitrary exercise of state power or a misuse of authority. In
determining as to whether the jurisdiction should be exercised
in a contractual dispute, the Court must, undoubtedly eschew,
UNITECH LIMITED & ORS. v. TSIIC & ORS.
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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 by Unitech over a decade ago.
It does not dispute the entitlement of Unitech to the refund of its
principal. [Para 33][1097-F-G; 1098-A, E-H; 1099-A-B]
2. Contractual right to compensatory payment
In the present case, the basic postulate underlying the
contract between the parties was the availability of the land which
comprised the project site. The LoA dated 28
November 2007,
stated that the allotment of land was subject to the outcome of
the pending appeal before the High Court of Andhra Pradesh.
The dispute over the title of the Government of Andhra Pradesh
was the subject of the pending litigation. At the same time, the
LoA mandated that Unitech must pay the amount stipulated -
including the purchase price of Rs.145 crores for the land as well
as the project development expenses. A failure to do so would
constitute a significant event of default resulting in a forfeiture of
the earnest money deposit. Acting on the LoA, Unitech did in
fact comply with its obligation to pay, having paid a total amount
of Rs.165 crores towards the purchase price, besides the earnest
money deposit and project development expenses.  The
Development Agreement which was executed between APIIC
and Unitech contains specific representations to the effect that
APIIC was authorized to transfer and deliver the project site
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admeasuring 350 acres on an outright sale basis.  Under the
Development Agreement, APIIC was to sell and transfer the land
absolutely together with its right, title and interest, free from all
encumbrances by executing a sale agreement. The terms of the
agreement were to prevail in the event of any conflict with any
other document which formed a part of the bidding process. The
terms of the agreement were placed on the pedestal of the highest
priority for interpretation, as compared to other documents,
including the LoA. Under the terms of the Development
Agreement, APIIC was obligated to sell and transfer the land
together with its right, title and interest free from all encumbrances
“forthwith upon payment of the last installment of the total
purchase price by the developer”. That Unitech paid the total
purchase price is not in dispute. The obligation assumed by APIIC
to handover possession together with title upon the payment of
the last installment of the purchase price unequivocally emerges
from Article 3.1 and Article 4.1 of the Development Agreement.
The fulfillment of the terms of the agreement was postulated on
the availability of the land. [Para 34][1099-B-H; 1100-A]
3. The failure of title in the erstwhile APIIC and the
Government of Andhra Pradesh attained finality upon the decision
of this Court in State of Andhra Pradesh Through Principal
Secretary v. Pratap Karan. The basic postulate on which the entire
contract was founded stood nullified
as a consequence of the failure
of title. The agreement clearly provides that the ability of the
Government 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.
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,
UNITECH LIMITED & ORS. v. TSIIC & ORS.
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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, even in the domain of contract,
claim an exemption from the public law duty to act fairly.The State
and its instrumentalities do not shed either their character or
their obligation to act fairly in their dealings with private parties
in the realm of contract. Investors who respond to the
representations held out by the State while investing in public
projects are legitimately entitled to assert that the representations
must be fulfilled and to enforce compliance with duties which have
been contractually assumed. [Para 37][1101-F-G; 1102-A-E]
State of Andhra Pradesh through Principal Secretary
v. Pratap Karan (2016) 2 SCC 82 – referred to.
4. 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. Interest on the basis of the SBI-PLR was
compounded annually in terms of the provisions of the
Development Agreement. The Single Judge noted that the
respondents to the writ proceedings had not disputed (i) the dates
of payment or (ii) interest at the rate of the SBI-PLR and no
material to contradict the computation was submitted. In appeal,
the Division Bench however directed that the claim for interest
should be computed from
14 October 2015. This was the date on
which Unitech addressed a communication seeking a refund of
the ‘compensatory payment’ following the decision of this Court
on 9 October 2015 on the absence of title to the land in the
Government of Andhra Pradesh. The Division Bench has
proceeded on the rationale that Unitech was placed on notice
that the award of the contract was subject to the outcome of the
appeal in the High Court; and Unitech was aware of the outcome
of the first appeal yet, as a developer, it wanted to continue with
the project. The above circumstances have no bearing on whether
Unitech is entitled to a refund of moneys from the date of initial
payment. 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
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basis for the “compensatory payment”.  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 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. Clause
17 of the LoA expressly mentioned that the title of the land is lis
pendens and subject to the outcome of the proceedings pending
before the Andhra Pradesh High Court. Unitech considered this
circumstance and consciously entered into the Development
Agreement. It continued to liaise with APIIC after an unfavorable
judgement of the Andhra Pradesh High Court and did not issue a
termination notice, until the title was conclusively denied by
a judgement of this Court. [Para 38][1102-F-G; 1103-A-H;
1104-A]
Central Bank of India v. Ravindra (2002) 1 SCC 367 :
[2001] 4 Suppl.  SCR  323 – followed . 
K P Subbarama Sastri v. KS Raghavan (1987) 2 SCC
424 (38) – relied on.
UNITECH LIMITED & ORS. v. TSIIC & ORS.
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5. 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, the interest rate is payable to Unitech, without
compounding. [Para 38][1105-B]
Apportionment 
of 
the 
liabilities 
between 
the
instrumentalities of the state of Andhra Pradesh and Telangana
6.1 The Single Judge has imposed the liability to refund on
TSIIC clarifying however, that it is “entitled to recover it from
the State of Andhra Pradesh and the APIIC, if under law they are
entitled to do so”. The Division Bench has not interfered with
the above direction. [Para 39][1105-C-D]
6.2 Section 68 of the Re-organization Act is comprised in
Part VII which enunciates “Provisions as to Certain
Corporations”. The corporations which are listed out in the IXth
Schedule include APIIC which appears at Serial No.17. Section
68(2) states that the assets, rights and liabilities of the companies
and corporations referred to in sub-Section (1) shall be re-
apportioned between the successor states in the manner provided
in Section 53. [Para 40][1105-D-E, G-H]
6.3 Section 65 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 empowers the
Central Government on a reference
made, within three years from the appointed date, by either of
the successor states to order an adjustment or allocation of the
liability. Finally, to complete the narration of the statutory scheme.
[Para 41][1106-E; 1107-A]
6.4 Section 71(a) speaks of the interests and shares of the
existing State of Andhra Pradesh in the companies specified in
the IXth Schedule between the successor States. APIIC has brought
on record the certificate issued by the Managing Directors of
TSIIC and APIIC recording the auditing of assets and liabilities
as on 1 June 2014. [Para 41][1107-C-D]
6.5 Schedule I provides for the Zonal offices pertaining to
Telangana region. Serial no.3 refers to the Shamshabad and Mauli
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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.
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. [Paras 42, 43][1109-A-C]
7. TSIIC and the State of Telangana have brought to our
notice that the Development Agreement, on the basis of which
Unitech has sought to avail its contractual remedy has not been
registered or assessed to stamp duty. Under Article 3.1 of the
Development Agreement, the obligation of paying registration
fees and stamp duty is on Unitech. 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.
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. [Para 44][1109-D-F]
8. 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; Unitech shall be entitled to a refund
UNITECH LIMITED & ORS. v. TSIIC & ORS.
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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
(except for compounding); 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. [Para 45][1109-G-H; 1110-A-F]
ABL International Ltd. v. Export Credit Guarantee
Corporation of India (2004) 3 SCC 553; State of UP v.
Sudhir Kumar 2020 SCC online SC 847; Oriental Kuries
Ltd. v. Lissa (2019) 19 SCC 732; Bhubaneshwar
Development Authority v. Susanta Kumar Mishra (2009)
4 SCC 684 : [2009] 2 SCR 149 – referred to.
Case Law Reference
[2015] 12 SCR 702  
referred to
Para 11
(2004) 3 SCC 553
referred to
Para 33
[2001] 4 Suppl. SCR 323 
followed
Para 38
(2019) 19 SCC 732
referred to
Para 38
[2009] 2 SCR 149
referred to
Para 38
(1987) 2 SCC 424
relied on
Para 38
CIVIL APPELLATE JURISDICTION
: Civil Appeal No. 317 of
2021.
From the Judgment and Order dated 01.04.2019 of the High Court
for the State of Telangana at Hyderabad in Writ Appeal No. 1594 of
2018.
With C.A. Nos. 318 and 319 of 2021
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N. Venkataraman, ASG., C. S. Vaidyanathan, Sr. Adv.,
Ms. Anubha Agrawal, Ms. Ranjeeta Rohatgi, Ms. Neeha Nagpal,
Anuroop Chakravarti, S. Udaya Kumar Sagar, Ms. Sweena Nair,
Ms. Sharu Anna John, Advs. for the Appellants.
N. Venkataraman, ASG., C. S. Vaidyanathan, Soumya
Chakraborty, Sr. Advs., S. Udaya Kumar Sagar, Ms. Sweena Nair,
Ms. Sharu Anna John, Ms. Anubha Agrawal, Arup Banerjee, Mahesh
Agarwal, Anuroop Chakravarti, Ms. Neeha Nagpal, Anshuman
Srivastava, E. C. Agrawala, Advs. for the respondents.
The Judgment of the Court was delivered by
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
E.2. Contractual right to compensatory payment
E.3. Apportionment of the liabilities between the
instrumentalities of the state of Andhra Pradesh and
Telangana
F.
Summation
A. Background
1. The appeals arise from a judgment dated 1 April 2019 of a
Division Bench of the High Court for the State of Telangana. Three
appeals will form the subject matter of these proceedings. The three
appeals which arise have been instituted by
(i)
UNITECH Limited (“Unitech”);
(ii)
Telangana State Industrial Infrastructure Corporation
(“TSIIC”); and
(iii)
State of Telangana.
UNITECH LIMITED & ORS. v. TSIIC & ORS.
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2. 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 in Nadergul Village,
Saroornagar Mandal, Ranga Reddy District. In pursuance of its press
release, APIIC floated a bid document.
3. On 28 November 2007, the bid submitted by Unitech was
accepted upon payment of an earnest money deposit of 20 crores. It
was contractually required to pay an amount of Rs 140 crores as project
land cost and Rs 5 crores towards project development expenses. A
litigation in regard to the land was pending. While issuing a Letter of
Award (“LoA”), APIIC made the allotment of the land subject to the
outcome of the pending litigation. The LoA stipulated that:
“17. The allotment of said land is subject to the outcome of the
Appeal Suit No. 274/2007 in (OS No. 155/05), WP Nos. 19670/
07, 20667/07 and 22043/07 pending before the Hon’ble High Court
of Andhra Pradesh.”
4. Pursuant to accepting the LoA on 3 December 2007, Unitech
paid the first installment of Rs 15 crores towards the purchase price of
the land. This was followed by the second installment for Rs 20 crores
on 4 December 2007. On 27 December 2007, it deposited an amount of
Rs 5 crores towards project development expenses. On 1 January 2008,
it paid the third installment of Rs 35 crores towards the
purchase price
of the land.
5. On 5 January 2008, APIIC while acknowledging the receipt of
the three installments of Rs 70 crores towards the cost of land directed
the Zonal Manager, Shamshabad Zone, Hyderabad to hand over the
project site to enable Unitech to commence survey and planning work.
The fourth installment of Rs 35 crores towards the purchase price of the
land was paid on 11 January 2008, while the fifth installment for another
Rs 35 crores was paid on 25 January 2008. Unitech paid, in the above
manner, a total amount of Rs 165 crores: Rs 140 crores towards the cost
of land, Rs 20 crores towards earnest money deposit and Rs 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,
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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 encumbrances, before work could commence.
8. On 21 May 2011, APIIC was informed that a ‘political force
majeure event’ within the meaning of the Development Agreement had
taken place. On 19 December 2011, the High Court of Andhra Pradesh
in a proceeding titled as “Pratap Karan v Govt. of Andhra Pradesh1,
held that the Government of Andhra Pradesh did not have title to the
project land. Following the decision, Unitech by its communication dated
27 March 2012 requested APIIC to clarify the position and to jointly
explore possible solutions to the title dispute over the project site.
9. On 12 July 2012, Unitech addressed a letter to APIIC recording
that:
“9. In view of the delay in the commencement of the Project on
account of reasons attributable to APIIC alone, the Developer is
suffering
financial losses and great hardship. You would appreciate
that financial institutions are being paid interest on the aggregate
amounts paid to APIIC for the Project, and the Developer is
considering further appropriate action.”
On 8 April 2013, Unitech again called upon APIIC to come forward
to execute the sale deed, handover the project site and ensure that the
encumbrances on the project land are cleared in terms of the
Development Agreement so as to comply with its obligations at the
earliest.
10. The State of Andhra Pradesh was re-organized into the
successor States of Andhra Pradesh and Telangana with effect from 2
June 2014 under the provisions of the Andhra Pradesh Reorganization
1 Appeal Suit No. 274 of 2007 (Andhra Pradesh High Court)
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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Act, 2014. On 12 March 2015, Unitech addressed a letter to the newly-
formed TSIIC (as successor of APIIC) seeking its intervention in
clarifying the actual status of the extent of the land awarded to them, the
cases against the erstwhile APIIC, physical handover of possession with
a clear title and compensation for loss of time and opportunity. On 2
April 2015, Unitech sought a release of the earnest money deposit of Rs
20 crores, in light of the full payment of the consideration.
11. On 9 October 2015, a two-judge bench of this Court in its
decision in State of Andhra Pradesh through Principal Secretary v.
Pratap Karan2 upheld the judgment of the High Court. After the decision
of this Court, Unitech requested APIIC and TSIIC, on 14 October 2015,
to refund all the amounts which have been received in 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 Rs 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 20173 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 Telangana4 seeking a refund of Rs 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 61 to 64 of the judgment are extracted
below:
“61. In the instant case, 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
2 (2016) 2 SCC 82
3 Writ Petition (Civil) No. 302 of 2017 (Supreme Court of India)
4 Writ Petition (Civil) No. 29722 of 2017 (Andhra Pradesh High Court)
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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.
“62. According to the petitioners, as on 30-09-2018, the following
amounts are payable:
Interest was calculated compounded annually @ SBI PLR Rate.
Counsel for petitioner stated that since SBI PLR was only
available till 5th Oct 2015 as per SBI website, post that period,
SBI PLR has been taken at same rate as 5th Oct 2015 i.e. 14.05%
p.a.
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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63. The respondents have not disputed either the dates of the
payments or the interest at SBI Prime Lending Rate mentioned
by the petitioners or placed any material to contradict the same.
64. Therefore I hold that the amount of Rs.660.55 crores
is due and payable to the petitioners by respondents, which
shall be paid by respondents to petitioner no.3 within 4
weeks from today. However, they are entitled to recover it from
the State of Andhra Pradesh and the APIIC, if under law they are
entitled to do so. This does not preclude the petitioners from
claiming other amounts from respondents towards damages under
other heads, if they are entitled to do so under law.”
(emphasis supplied)
14. A Writ Appeal was filed before the High Court by TSIIC and
the State of Telangana5. The Division Bench of the High Court upheld
the order of the Single Judge on the liability of TSIIC to refund an amount
of Rs 165 crores to Unitech. However, the Division Bench directed a
refund of the principal sum of Rs 165 crores with interest from 14 October
2015 at the SBI-PLR, as opposed to the dates of payment of installments,
beginning from September 2007.
15. The Division Bench of the High Court has come to the
conclusion that in the exercise of the writ jurisdiction under Article 226,
the Single 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;
5 Writ Appeal No. 1594 of 2018 (Andhra Pradesh High Court)
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(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 Court attained finality through
the decision of this Court dated 9 October 2015; and
(v)
Unitech was aware of the pending litigation and was
awaiting the outcome of the civil appeal and the tenor of
the correspondence indicates that they wished to continue
with the project.
On the above premises, the Division Bench of the High Court
took a considered view that Unitech’s request for a refund on 14 October
2015, after the decision of this Court confirming that the Government of
Andhra Pradesh had no title to the land, should mark the commencement
of TSIIC’s liability to pay interest.
B. Proceedings before this Court
16. Notice was issued by this Court in the Special Leave Petition
filed by Unitech on 15 April 2019.
17. On 13 February 2020, this Court recorded that a new Board
of Directors had taken charge of the business of Unitech limited. At this
stage, it must be noted that the Board of Directors of Unitech has been
superseded and replaced by a Board appointed by the Union government.
18. On 5 March 2020, when the proceedings came up before this
Court, besides 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. This Court noted
the submissions which were urged on behalf of TSIIC that following the
re-organization of the erstwhile State of Andhra Pradesh, a division of
the assets and liabilities was required to be effected by the Central
government under Section 71 of the Andhra Pradesh Reorganization
Act 2014, in the absence of which TSIIC could not alone be held liable
to deposit the entire amount as ordered to be refunded by the High
Court. This Court recorded the submission of TSIIC that it would deposit
42 per cent of the principal sum of Rs 165 crores, amounting to Rs 69.30
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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crores. It additionally directed that interest commencing from 14 October
2015 must be deposited, at the rate and in the manner directed by the
Single Judge of the High Court. The order of this Court dated 5 March
2020 reads thus:
“ ……Mr C S Vaidyanathan, learned senior counsel appearing on
behalf of TSIIC contests the liability of TSIIC to meet the liability
for the outstanding, if any, that may be due from APIIC. In this
context, reliance has been placed on Section 68 of the Andhra
Pradesh Reorganisation Act 2014 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.
The submission of Mr C S Vaidyanathan is that in the absence of
a division by the Central Government between the liability of APIIC
and TSIIC, as contemplated in Section 71 of the Act, TSIIC cannot
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be held liable for the entire amount merely on the ground that the
lands fall within the jurisdiction of the successor State of
Telangana. The submission is that despite the objections which
were raised on behalf of the TSIIC, APIIC was not impleaded as
a party to the proceedings before the High Court.
Mr Tushar Mehta, learned Solicitor General of India has appeared
both in support of the Special Leave Petition which has been filed
on behalf of Unitech Limited (which is now under the management
of a Board of Directors constituted by the Central Government)
and to oppose the Special Leave Petitions, which have been filed
by TSIIC.
At this stage, we direct that APIIC be impleaded as a party in all
the Special Leave Petitions. The amendment be carried out within
a period of one week from today.
Notice shall be issued to APIIC, the newly impleaded party,
returnable in four weeks.
Mr. C.S. Vaidyanathan, learned senior counsel stated that without
prejudice to the rights and contentions of TSIIC in these
proceedings, it will deposit forty-two per cent of the principal sum
of Rs 165 crores before this Court, which works out to Rs 69.30
crores. This amount shall be deposited within a period of four
weeks from today. In addition, we are of the view that since there
is effectively a money decree, TSIIC should also deposit interest
computed on the aforesaid amount of Rs 69.30 crores, computed
with reference to 14 October 2015 as the commencement date,
at the rate
and in the manner which has been directed in the order
of the learned Single Judge of the High Court, by 30 April 2020.
All amounts which are deposited by TSIIC shall be subject to the
result of the present proceedings and would be without prejudice
to its rights and contentions.
The amount, upon deposit, shall be invested in a fixed deposit of a
nationalized bank by the Registry of this Court. The newly
constituted Board of Directors of Unitech Limited would be at
liberty to make an application for withdrawal of the aforesaid
amount.”
Notice has been issued in the Special Leave Petitions filed by the
State of Telangana on 22 July 2019 and by TSIIC on 29 April 2019.
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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19. The appeals arising 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 Rs 140
crores towards the value of the land, payable in four tranches each of
Rs 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 Rs.140 crores
(Rupees one hundred and forty crores only). The value of the
land is fixed at Rs.40 Lakhs per acre (Rupees Forty Lakhs per
acre) and payable to APIIC as follows:
i)
Rs.35 Crores (Rs. Thirty Five crores only) within 7 days
from the issue of LOA to the Developer.
ii)
Rs.35 Crores (Rs. thirty Five Crores only) to be paid within
30 days from the date of 1st instalment by the developer.
iii)
Rs.35 Crores (Rs. thirty five Crores only) within 15 days
from the
date of 2nd instalment by the developer.
iv)
Rs.35 Crores to be paid within 15 days from the date of 3rd
instalment by the developer.
Sale Deed will be executed by APIIC in favour of Special Purpose
Vehicle (SPV) only on receipt of rs.140 Crores from the Successful
Bidder/SPV, as per the instalments fixed above.
“All the payments mentioned above need to be strictly adhered to
by the Developer/ SPV. In the event of default of any of the
instalments mentioned above, APIIC shall forthwith forfeit the
respective amounts paid by the Bidder (in addition to EMD) unless
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APIIC has given any extension of time for any such payment.
Any such default in payment by the Developer/ SPV may lead to
withdrawal or cancellation of award of the project to the Successful
Bidder without any obligation or liability on whatsoever account
to APIIC.
APIIC decision to withdraw or cancel award of project in such
default circumstances shall be final and binding on the Developer/
SPV. The total Purchase Price may be adjusted based on the
extent of the land verified during the joint inspection of the
respective Developer and APIIC.
(illegible) will be handed over to SPV on, “as is where is basis” in
parcels to such (illegible).”
Clause 12 contemplated the forfeiture of the Earnest Money
Deposit and / or performance security in the event of a “significant
event of default” prior to execution of the Development Agreement.
Among the default events were:
“(ii) Failure to pay the Total Purchase Price quoted for the land to
APIIC within the time as specified in this Letter of Award.”
22. Some of the salient provisions regarding transfer of land in the
Development Agreement dated 19 August 2008 executed between
APIIC and Unitech are set out below:
(i)
The recitals to the agreement contained a specific
representation that APIIC was authorized to transfer and
deliver the project site admeasuring 350 acres:
“D) In terms of a Panchnama dated 8.5.2007 of the
Deputy- Collector, Saroornagar Mandal, RR District has
transferred Acres 373-22 Guntas in Survey
No. 613
(New 119) at Nadergul Village 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
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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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 audited accounts of the Developer;
(ii)  Interest-calculated at the rate of SBI PLR
(“Interest”), on the Total Purchase Price of the
Compensated, Land, from the date on which the first
payment of purchase price in respect of the Compensated
Land is made (whether by way of an advance or an
earnest money deposit) until the Reference Date.
All the above payments shall be denominated in Indian
rupees.”
(ii)
Article 1.7 stipulates an order of priorities under which, in
the event of a conflict between the agreement and any other
document, the former would prevail:
“1.7 In the event of any conflict between the terms of
this Agreement and the Schedules or any other
document, this Agreement shall
prevail. The document
forming part of bidding process leading to this
Agreement shall be relied upon and interpreted in the
following descending order of priority;
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(a) This-Agreement (Including any amendment /
supplement to this Agreement) and the Detailed Project
Report]
(b) The Schedules & Annexures to this Agreement
(c) The Letter of Award issued to the preferred bidder
(d) Preferred bidders bid
(e) The RFP”
(iii)
Under Article 3.1, APIIC undertook the obligation to transfer
the land to the developer free from all encumbrances, upon
the developer’s payment of the last installment of the total
purchase price:
“3.1 APIIC shall, forthwith upon payment of the last
instalment of the Total Purchase Price by the Developer
sell and transfer the Land 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, which shall be
registered with the concerned Registrar / Sub Registrar
of Assurances. The stamp duty and registration fees
payable, if any, on the Sale Deed (subject to Article 8.6
below) to be executed in favour of the Developer shall
be borne by the Developer;”
(iv)
APIIC acknowledged the payment of Rs 140 crores towards
the total purchase price and Rs 5 crores towards project
development expenses in Article 3.2.
(v)
Under Article 4.1, the developer was to have exclusive
promotion and advertising rights in respect of the project
and under Article 4.2, could enjoy all rights, privileges and
benefits as are generally available to an owner of immovable
property.
(vi)
Simultaneously with the payment
of the last installment of
the total purchase price, APIIC was required to handover
to the developer:
(a)
Ownership and title documents to the land;
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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(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 Project Site (other than those created by the
Developer) at any point in time in accordance with the
provisions of this Agreement;
(d) to facilitate provisions of External infrastructure as
contemplated in this Agreement.”
(viii) The consequences of default by APIIC were stipulated in
Article 14.3. Thy were envisaged in the following terms:
“14.3.1 In the event APIIC/ GOAP is unable to execute
Sale Deed in
favour of the Developer in respect of the
Land, within the time specified, APIIC shall, if so required
by the Developer, pay Compensatory to the Developers,
subject to stay /interim / injunctive / other orders issued
by High Court of Andhra Pradesh or any other competent
court/ s.”
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(ix)
Article 14.3.4 stipulated that:
“14.3.4 Without prejudice to its rights and remedies the
Developer shall in no event be (a) liable for failure to
meet any of its obligations under this Agreement in the
event such failure could be attributed to (i) a default or
delay on the part of APIIC in fulfillment of any their
respective obligations under Article 13.3 of this
Agreement and/ or (ii) Encumbrances or Title Issues on
any portion of the Land, which may have Material
Adverse Effect on the Project and/ or (iii) Occurrence
of Force Majeure Events, and (b) required to pay any
interest or make any payment (including Revenue Share)
or provide any performance / bank guarantee or other
security to APIIC during (i) the continuance of any
default on delay on the part of APIIC in fulfillment of
their obligations under Article 13.3 of this Agreement
the Project Agreements, and/ or (ii) the period when the
development of Project is impacted due to Force Majeure
events & Title Issues on the Project Site.”
(x)
Article 17 of the Development Agreement contains
stipulations in regard to force majeure events. Article
17.2(a) defined ‘political force majeure events’:
“17.2 (a) Political Force Majeure Events, comprising
Acts of War, invasions, armed conflicts, terrorism, riots,
strikes, lockouts, curfews, restraints, acts of Government
(including expropriation or compulsory acquisition of any
Project Assets), or Change in Law (such as change in
policies of Gol in
relation to townships, foreign direct
investment), which event/s significantly impact the
Project, direct litigation related to APIIC’s / GoAP’s
title to the Project Site), stay/interim/ injunctive/
other orders issued 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
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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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 on the Project and
has continued for more than Nine (9) months from the
date of occurrence thereof. On the other hand Developer
shall be solely entitled (but not obligated) to issue notice
of Termination of this Agreement if a Political Force
Majeure Event (or its direct impact) has resulted in
Material Adverse Effect on the Project and has continued
for more than Nine (9) months from the date of
occurrence thereof. Upon any such termination of this
Agreement due to Political Force Majeure event, APIIC
will pay the Compensatory Payment (less any insurance
proceeds recovered by the Developer), to the
Developer
simultaneously with the Developer handing back the
Unsold Property to APIIC.”
D. Submissions of the parties
24. Mr N Venkataraman, learned Additional Solicitor General,
appearing on behalf of the management of Unitech (appointed by the
Union of India), emphasized the following undisputed facts:
(i)
Title was never conveyed by APIIC to Unitech In terms of
the Development Agreement;
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(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; and
(iv)
The project cannot be implemented in the absence of title
to the lands in the State Government.
25. Relying on a line of precedent of this Court, the ASG submitted
that:
(a)
The entire project was premised on the conveyance of title
to the land, free from all encumbrances by APIIC to
Unitech;
(b)
A solemn representation was held out in the Development
Agreement that APIIC was in a position to convey title and
possession to Unitech following the award of the contract
to it as a developer;
(c)
Unitech fulfilled the peremptory obligation to deposit an
amount of Rs 165 crores upfront;
(d)
‘Political force majeure events’ included litigation relating
to the title of APIIC or the Government of Andhra Pradesh.
On the coming into being of a political force majeure event
which caused a material adverse impact on the project for
over nine months, Unitech was entitled to compensatory
payment from APIIC;
(e)
Upon the failure of title of the Government of Andhra
Pradesh resulting from the judgment of this Court dated 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
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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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 interest must be computed
from the date on which each of the installments were paid;
and
(j)
When the LoA was issued on 28 November 2007, the
judgment dated 23 April 2007 held the field, which was in
favour of the Government of Andhra Pradesh. Its
subsequent reversal would entitle the developer to a refund
with interest, as contracted from the date of the initial
payment.
26. Mr C S Vaidyanathan, learned 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; and
(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 submissions of Mr C S Vaidyanathan,
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.
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27. On the award of interest, the submission is that:
(i)
The LoA dated 28 November 2017 furnished notice to
Unitech of the pendency of the litigation;
(ii)
Unitech and its SPV were conscious of the pendency of
the appeal before the High Court arising out of the judgment
dated 30 April 2007, which had ruled in favour of the title of
the Government of Andhra Pradesh;
(iii)
Unitech continued to pursue the project and did not claim
political force majeure, until after the decision of this court
on 09 October 2015;
(iv)
In any event, the High Court has brought about a just
balancing of equities by granting interest from the date of
the decision of this Court namely 14 October 2015; and
(v)
The rate of interest should be suitably scaled down from
the SBI- PLR.
The above submissions in regard to the payment of interest; the
date from which interest should be payable and the appropriate rate of
interest, were postulated on the liability to refund the principal amount to
Unitech. As a matter of fact, it has been expressly stated during the
course of the submissions that the liability to refund is not being contested.
28. The second limb of submissions is that the liability to refund
the principal amount together with 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 Rs.127.53 crores before
this Court in pursuance of the interim order dated 5 March
2020, out of which Rs.69.30 crores represents the principal
and Rs.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-
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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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 companies specified in
the IXth Schedule inter alia for dividing the interest and
shares of the existing State of Andhra Pradesh between
the successor States;
(iv)
Section 65 allows for an apportionment of assets and
liabilities by agreement, while Section 66 confers power on
the Central government to order an allocation or adjustment
in certain cases;
(v)
Though the Central government constituted a Committee
for the distribution of assets, it has not issued any directions,
despite the committee submitting its recommendations, in
view of the pendency of a petition under Article 32 of the
Constitution before this Court; and
(vi)
Section 2(h) of the Re-organization Act provides for a
population ratio of 58.32 : 41.68 in relation to the States of
Andhra Pradesh and Telangana, based on the 2011 census.
On the basis of a population ratio of approximately of 58:42,
TSIIC has borne 42 per cent of the liability towards the
refund due to Unitech and the balance should be directed
to be shared by APIIC representing the successor State of
Andhra Pradesh based on the “normal sharing as per the
population ratio”.
29. During the course of these proceedings, APIIC was directed
to be impleaded. APIIC has entered appearance and filed its own counter
affidavit. Mr Anuroop Chakravarti, learned Counsel appearing on behalf
of the APIIC, has opposed the submissions urged on behalf of the State
of Telangana and TSIIC that the liability to refund the principal and
interest must be apportioned between TSIIC and APIIC. APIIC has
submitted that:
(i)
Before the appointed date of 2 June 2014, determined under
the Re-organization Act, a final audit was completed on 1
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June 2014 and a joint certificate was issued by the Managing
Directors of TSIIC/APIIC;
(ii)
The certificate issued on behalf of TSIIC and APIIC by its
Managing Directors records that all the assets and liabilities
having a bearing in the balance sheet as on 1 June 2014
have been audited and included in the demerger scheme
and that all assets and liabilities were duly apportioned
between Andhra Pradesh and Telangana under the Re-
organization Act; and
(iii)
Under the scheme of demerger/apportionment, the liability
in respect of the dues payable to Unitech has to be borne
by TSIIC. This would be evident from the terms and
conditions which have been spelt out in Part II of the third
Schedule. The Schedule elucidates 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 Petition6 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
6 SLP (C) No. 10135 of 2019
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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forming a part of the agreement, and agreed to await the
outcome of the litigation; and
(vi)
APIIC entered into the agreement with Unitech and ought
to share the liabilities in the population ratio of approximately
58:42, as provided under the Andhra Pradesh Re-organization
Act 2014.
31. The State of Telangana, in its submissions before this Court in
the Special Leave Petition had similarly assailed the judgment of the
High Court on several grounds including the following :
(i)
The claim for refund is based on an unregistered
Development Agreement which is invalid;
(ii)
The land which is comprised in the project site can be made
available for the project as the land owners have agreed to
transfer the land to the Government of Telangana;
(iii)
The terms and conditions of the LoA were not complied
with by Unitech;
(iv)
In view of the arbitration agreement, a writ petition under
Article 226 could not be maintained; and
(v)
The liability, if any, has to be shared between the successor
states of Andhra Pradesh and Telangana in the ratio of 58:42.
E. Analysis
E.1.  Maintainability of the writ petition under Article 226
32. Much of the ground which was sought to be canvassed in the
course of the pleadings is now subsumed in the submissions which have
been urged before this Court on behalf of the State of Telangana and
TSIIC. As we have noted earlier, during the course of the hearing, learned
Senior Counsel appearing on
behalf of the State of Telangana and TSIIC
informed the Court that the entitlement of Unitech to seek a refund is
not questioned nor is the availability of the land for carrying out the
project being placed in issue. Learned Senior Counsel also did not agitate
the ground that a remedy for the recovery of moneys arising out a
contractual matter cannot be availed of under Article 226 of the
Constitution. However, to clear the ground, it is necessary to postulate
that recourse to the jurisdiction under Article 226 of the Constitution is
not excluded altogether in a contractual matter. A public law remedy is
available for enforcing legal rights subject to well-settled parameters.
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33. A two judge Bench of this Court in ABL International Ltd.
v. Export Credit Guarantee Corporation of India7 [ABL
International] analyzed a long line of precedent of this Court8 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 Kumar9 and Popatrao Vynkatrao Patil v. State of
Maharashtra10. The decision in ABL International, cautions that the
plenary power under Article 226 must be used with circumspection when
other remedies have been provided by the contract. But as a statement
of principle, the jurisdiction under Article 226 is not excluded in contractual
matters. Article 23.1 of the Development Agreement in the
present case
mandates the parties to resolve their disputes through an arbitration.
However, the presence of an arbitration clause within a contract between
a state instrumentality and a private party has not acted as an absolute
bar to availing remedies under Article 226.11 If the state instrumentality
violates its constitutional mandate under Article 14 to act fairly and
7 (2004) 3 SCC 553
8 K.N. Guruswamy v. State of Mysore, AIR 1954 SC 592; Gujarat State Financial
Corporation. v. Lotus Hotels (P) Ltd, (1983) 3 SCC 379; Gunwant Kaur v. Municipal
Committee, Bhatinda, (1969) 3 SCC 769
9 2020 Scconline SC 847
10 Civil Appeal 1600 of 2000 (Supreme Court of India)
11 Harbanslal Sahnia v. Indian Oil Corporation Ltd., (2003) 2 SCC 107; Ram Barai Singh
& Co. v. State of Bihar & Ors., (2015) 13 SCC 592
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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reasonably, relief under the plenary powers of the Article 226 of the
Constitution would lie. This principle was recognized in ABL
International:
“28. However, while entertaining an objection as to the
maintainability of a writ petition under Article 226 of the Constitution
of India, the court should bear in mind the fact that the power to
issue prerogative writs under Article 226 of the Constitution is
plenary in nature and is not limited by any other provisions of the
Constitution. The High Court having regard to the facts of the
case, has a discretion to entertain or not to entertain a writ petition.
The Court has imposed upon itself certain restrictions in the
exercise of this power. (See Whirlpool Corpn. v. Registrar of Trade
Marks [(1998) 8 SCC 1] .) And 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.”
(emphasis supplied)
Therefore, 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. The
jurisdiction under Article 226 is a valuable constitutional
safeguard against an arbitrary exercise of state power or a misuse of
authority. 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
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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.
E.2 Contractual right to compensatory payment
34. In the present case, the basic postulate underlying the contract
between the parties was the availability of the land which comprised the
project site. The LoA dated 28 November 2007, stated that the allotment
of land was subject to the outcome of the pending appeal before the
High Court of Andhra Pradesh. The dispute over the title of the
Government of Andhra Pradesh was the subject of the pending litigation.
At the same time, the LoA mandated that Unitech must pay the amount
stipulated - including the purchase price of Rs.145 crores for the land as
well as the project development expenses. A failure to do so would
constitute a significant event of default resulting in a forfeiture of the
earnest money deposit. Acting on the LoA, Unitech did in fact comply
with its obligation to pay, having paid a total amount of Rs.165 crores
towards the purchase price, besides the earnest money deposit and project
development expenses.  The Development Agreement which was
executed between APIIC and Unitech contains specific representations
to the effect that
APIIC was authorized to transfer and deliver the project
site admeasuring 350 acres on an outright sale basis.  Under the
Development Agreement, APIIC was to sell and transfer the land
absolutely together with its right, title and interest, free from all
encumbrances by executing a sale agreement. The terms of the
agreement were to prevail in the event of any conflict with any other
document which formed a part of the bidding process. The terms of the
agreement were placed on the pedestal of the highest priority for
interpretation, as compared to other documents, including the LoA. Under
the terms of the Development Agreement, APIIC was obligated to sell
and transfer the land together with its right, title and interest free from
all encumbrances “forthwith upon payment of the last installment of the
total purchase price by the developer”. That Unitech paid the total
purchase price is not in dispute. The obligation assumed by APIIC to
handover possession together with title upon the payment of the last
installment of the purchase price unequivocally emerges from Article
3.1 and Article 4.1 of the Development Agreement. The fulfillment of
the terms of the agreement was postulated on the availability of the
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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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:
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35. The consequences of default are expressly stipulated in the
agreement. Article 17 stipulates force majeure events. Article 17.2
provides for political force majeure events comprising inter alia “direct
litigation related to APIIC’s/GoAP’s title to the project site, stay/interim/
injunctive/ other orders issued by the Court…”
36. Article 14.3.4 expressly stipulates that the developer shall not
be liable for the failure to meet any of its obligations under the agreement,
in the event, that it could be attributed to a default or delay on the part of
APIIC in fulfilling its obligations.  Similarly, the developer would not be
held liable as a result of encumbrances or title issues on any portion of
the land which may have a material adverse effect on the project or as
a consequence of force majeure events. Article14.3.1 stipulates that in
the event that APIIC/Government of Andhra Pradesh were unable to
execute the sale deed in favour of the developer in respect of the land
within the time specified, APIIC shall, if so required for the developer,
make compensatory payment subject to court orders. In the event of a
political force majeure event, Unitech was, in terms of Article 17.6,
solely entitled to issue a notice of termination, if it resulted in a material
adverse effect on the project, continuing for more than nine months.  In
that event, APIIC was obligated to make the compensatory payment to
the developer. Compensatory payment liable to be paid in
terms of the
agreement is expressly defined, including for the purposes of Article
14.3.1, to mean an amount which is the aggregate of (i) the total purchase
price; and (ii) interest calculated at the SBI-PLR on the total purchase
price “from the date on which the first payment of purchase price
in respect of compensated land is paid”. The applicable rate was
also defined12 to mean the Prime Lending Rate of the SBI, compounded
annually.
37. The failure of title in the erstwhile APIIC and the Government
of Andhra Pradesh attained finality upon the decision of this Court in
State of Andhra Pradesh Through Principal Secretary v. Pratap
Karan13. The basic postulate on which the entire contract was founded
stood nullified as a consequence of the failure of title. The agreement
clearly provides that the ability of the Government of Andhra Pradesh/
TSIIC to convey full title to the developer forms the basis of the contract. 
12 “Article 1(h)- ‘Applicable Rate’ means the prime lending rate of the State Bank of
India, compounded-annually.”
13 (2016) 2 SCC 82
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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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, even in the domain of contract, claim an
exemption from the public law duty to act fairly.14 The State and its
instrumentalities do not shed either their character or their obligation to
act fairly in their dealings with private parties in the realm of contract.
Investors who respond to the representations held out by the State while
investing in public projects are legitimately entitled to assert that the
representations must be fulfilled and to enforce compliance with duties
which have been contractually assumed.
38. 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.
Interest on the basis of the SBI-PLR was compounded annually in terms
of the provisions of the Development Agreement. The Single Judge noted
that the respondents to the writ proceedings had not disputed (i) the
dates of payment or (ii) interest at the rate of the SBI-PLR and no
material to contradict the computation was submitted. In appeal, the
Division Bench however directed that the claim for interest should be
computed from 14 October 2015. This was the date on which Unitech
addressed a communication seeking a refund of the ‘compensatory
payment’ following the decision of this Court on 9 October 2015 on the
14 Indsil Hydropower v. State of Kerala, Civil Appeal Nos. 5943-5945 of 2019 (Supreme
Court of India), para 33; ABL International Ltd. v. Export Credit Guarantee Corporation
of India, (2004) 3 SCC 553, para 23; Central Bank of India v. Devi Ispat Ltd., (2010) 11
SCC 186, para 28
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absence of title to the land in the Government of Andhra Pradesh. The
Division Bench has proceeded on the rationale that
(i)
Unitech was placed on notice that the award of the contract
was subject to the outcome of the appeal in the High Court;
and
(ii)
Unitech was aware of the outcome of the first appeal yet,
as a developer, it wanted to continue with the project.
The above circumstances have no bearing on whether Unitech is
entitled to a refund of moneys from the date of initial payment. 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”. 
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
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.
Clause 17 of the LoA expressly mentioned that the title of the land is lis
pendens and subject to the outcome of the proceedings pending before
the Andhra Pradesh High Court. Unitech considered this circumstance
and consciously entered into the Development Agreement. It continued
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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to liaise with APIIC after an unfavorable judgement of the Andhra
Pradesh High Court and did not issue a termination notice, until the title
was conclusively denied by a judgement of this Court. A Constitution
Bench of this Court, in the case of Central Bank of India v. Ravindra15,
when considering the question of penal interest rates, had observed:
“39….. Pre-suit interest is referable to substantive law and can
be subdivided into two sub-heads: (i) where there is a stipulation
for the payment of interest at a fixed rate; and (ii) where there is
no such stipulation. If there is a stipulation for the rate of interest,
the court must allow that rate up to the date of the suit subject to
three exceptions: (i) any provision of law applicable to
moneylending transactions, or usury laws or any other debt law
governing the parties and having an overriding effect on any
stipulation for payment of interest voluntarily entered into between
the parties; (ii) if the rate is penal, the court must award at such
rate as it deems reasonable; (iii) even if the rate is not penal
the court may reduce it if the interest is excessive and the
transaction was substantially unfair.” 
(emphasis supplied)
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.16 In upholding the reasoning of the
Kerala High Court in full, a two judge Bench of this Court in K P
Subbarama Sastri v. KS Raghavan17 held:
“5…”The question whether a particular stipulation in a contractual
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
15 (2002) 1 SCC 367
16 Oriental Kuries Ltd. v. Lissa, (2019) 19 SCC 732; Bhubaneshwar Development
Authority v. Susanta Kumar Mishra, (2009) 4 SCC 684
17 (1987) 2 SCC 424
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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 between the
instrumentalities of the state of Andhra Pradesh and Telangana
39. This leaves the court with the last facet which pertains to the
dispute inter se between TSIIC and APIIC. The Single Judge has imposed
the liability to refund on TSIIC clarifying however, that it is “entitled to
recover it from the State of Andhra Pradesh and the APIIC, if under
law they are entitled to do so”. The Division Bench has not interfered
with the above direction.
40. Section 68 of the Re-organization Act is comprised in Part
VII which enunciates “Provisions as to Certain Corporations”. Section
68 of the Re-organization Act provides as follows:
“68. (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 provision 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.”
The corporations which are listed out in the IXth Schedule include
APIIC which appears at Serial No.17. Section 68(2) states that the
assets, rights and liabilities of the companies and corporations referred
to in sub-Section (1) shall be re-apportioned between the successor states
in the manner provided in Section 53. Section 53 is in the following terms:
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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“53. (1) The assets and liabilities relating to any commercial or
industrial undertaking of the existing State of Andhra Pradesh,
where such undertaking or part thereof is exclusively located in,
or its operations are confined to, a local area, shall pass to the
State in which that area is included on the appointed day,
irrespective of the location of its headquarters:
Provided that where the operation of such undertaking becomes
inter-State by virtue of the provisions of Part II, the assets and
liabilities of––
(a) the operational units of the undertaking shall be apportioned
between the two successor States on location basis; and
(b) the headquarters of such undertaking shall be apportioned
between the two successor States on the basis of population
ratio.
(2) Upon apportionment of the assets and liabilities, such assets
and liabilities shall be transferred 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 6518 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 6619
empowers the Central Government on a reference made, within three
years from the appointed date, by either of the successor states to order
18 “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.”
19 “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 to, or shared with, the other successor State, or that a contribution
towards that liability should be made by the other successor State, the said property or
benefits shall be allocated in such manner between the two States, or the other State
shall make to the State subject to the liability such contribution in respect thereof, as
the Central Government may, after consultation with the two State Governments, by
order, determine.”
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an adjustment or allocation of the liability. Finally, to complete the narration
of the statutory scheme, Section 71 is in the following terms:
“71. 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 representations is the successor
States.”
Section 71(a) speaks of the interests and shares of the existing
State of Andhra Pradesh in the companies specified in the IXth Schedule
between the successor States. APIIC has brought on record the
certificate issued by the Managing Directors of TSIIC and APIIC
recording the auditing of assets and liabilities as on 1 June 2014. The
certificate is in the following terms:
“CERTIFICATE
 “This is to certify that Andhra Pradesh Industrial Infrastructure
Corporation Limited (APIIC LTD.,), Hyderabad have got its Books
of Accounts audited upto 1st June, 2014 by M/s Jawahar and
Associates, Hyderabad (Statutory Auditors) and accordingly a)
All the Assets and Liabilities as appearing in the Balance Sheet
as on 01.06.2014 have been brought on record and have been
audited and included in the Demerger Scheme and Demerger
Balance Sheet and b) the instructions of the Special Chief
Secretary
(Industries and Commerce), Government of Andhra
Pradesh vide Circular No.3685/INF (SRC)/2014 dated 29.05.2014
have been followed.
All the Assets and Liabilities were duly apportioned between
Andhra Pradesh and Telangana States as per the provisions of
Andhra Pradesh Reorganisation Act, 2014.
Further to certify that all the 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.
UNITECH LIMITED & ORS. v. TSIIC & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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 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 appurtenances of the Demerged Undertaking
namely Cyberabad Zone, Jeedimetla Zone, Karimnagar Zone,
Patancheru Zone, Shamshabad and Moula Ali Zone, Warangal
Zone vest with the Transferee Company and shall, subject to the
provisions of the scheme in relation to the mode of vesting and
pursuant to Section 53 of the Act and without any further act or
deed, or be deemed to have been apportioned and transferred to
and vested in the Transferee Company as a going concern so as
to become as and from the Appointed Date, the estate, assets,
rights, title, interest and authorities of the Transferee Company as
detailed in the Schedule-I”
Clause 3 provides thus:
“3(a) In respect of such of the assets and liabilities located/held at
the Headquarters of the Transferor Company shall be apportioned
between the Transferee
Company and Transferor Company on
the basis of population ratio.
(b) In respect of the investments in public, private or commercial
undertaking companies held by APIIC before the appointed date
are apportioned on location basis where the projects are located
in a specific region.
(c) In respect of investments in projects having multiple units falling
within the territories of State of Andhra Pradesh and Telangana
shall be apportioned on the basis of population.”
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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.
43. We clarify that 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.
F. Summation
44. TSIIC and the State of Telangana have brought to our notice
that the Development Agreement, on the basis of which Unitech has
sought to avail its contractual remedy has not been registered or assessed
to stamp duty. Under Article 3.1 of the Development Agreement, the
obligation of paying registration fees and stamp duty is on Unitech. 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.20 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 one month. The amount payable
20 Hindustan Steel Limited v. Dilip Construction Company, (1969) 1 SCC 597 para 7
UNITECH LIMITED & ORS. v. TSIIC & ORS.
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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;
(ii)
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;
(iii)
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 (except for compounding);
(iv)
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
(v)
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.
46. The appeals arising out of the Special Leave Petitions
filed by
the State of Telangana and TSIIC shall also stand disposed of in terms
of the present judgment. There shall be no order as to costs.
47. Pending application(s), if any, shall stand disposed of.
Devika Gujral
Appeals disposed of.