| 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 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 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 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. |
