# UNITECH LIMITED & ORS v. TELANGANA STATE INDUSTRIAL INFRASTRUCTURE CORPORATION (TSIIC) & ORS

- **Citation:** [2021] 1 S.C.R. 1064
- **Court:** Supreme Court of India
- **Decided:** 2021-02-17
- **Case number:** Civil Appeal No. 317 of 2021
- **Bench:** Dr. Dhananjaya Y Chandrachud, M. R. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/unitech-limited-ors-v-telangana-state-industrial-infrastructure-corporation-35414
- **Pages:** 47

## Headnote

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 t

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SUPREME COURT REPORTS
[2021] 1 S.C.R.
 [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 SBIPLR 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,
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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 reapportioned 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 SBIPLR 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)
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Act, 2014. On 12 March 2015, Unitech addressed a letter to the newlyformed 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 ("SBIPLR") 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.
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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;
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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
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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.