TaxTMI 
TaxTMI 
2021 (2) TMI 1181
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....ient 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. 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 e....
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....y 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 Pradesh [Appeal Suit No. 274 of 2007 (Andhra Pradesh High Court)], 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....
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.... 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 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. 63. The respondents have not disputed either the dates of the payments or the interest at SBI Prime Lending Rate....
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.... 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 s....
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....f 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 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....
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....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 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 cir....
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....f 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; (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 ....
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....ose 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." (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) ....
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....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; (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; (ii....
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....e 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. 27 On the award of interest, the submission is that: (i) The LoA dated 28 November....
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.... 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....
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....o 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....
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....ion 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 [Harbanslal Sahnia v. Indian Oil Corporation Ltd., (2003) 2 SCC 107; Ram Barai Singh & Co. v. State of Bihar & Ors., (2015) 13 SCC 592] 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. 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 ....
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....d 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 a....
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....litical 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 month....
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....ate 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] 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 s....
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....ticle 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. A Constitution Bench of this Court, in the case of Central Bank of India v. Ravindra [(2002) 1 SCC 367], 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 applica....
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.... 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 ....
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....operty 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."] 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, 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....
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.... 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." 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 sch....
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....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 orde....