UNITECH LIMITED & ORS. versus TELANGANA STATE INDUSTRIAL INFRASTRUCTURE CORPORATION (TSIIC) & ORS. on 17 February 2021

SUPREME COURT REPORTS

[2021] 1 S.C.R.

AUNITECH LIMITED & ORS.

v.

TELANGANA STATE INDUSTRIAL INFRASTRUCTURECORPORATION (TSIIC) & ORS.

(Civil Appeal No. 317 of 2021)

B

FEBRUARY 17, 2021

[DR. DHANANJAYA Y CHANDRACHUD

AND M. R. SHAH, JJ.]

Contract: Tender – APIIC invited bids to develop, design andCconstruct an integrated township/aerospace park in area of 350acres of land – Unitech was successful bidder – In LOA, it wasstipulated that the allotment of land was subject to outcome of apending litigation – Pursuant to acceptance of LOA, Unitech byvarious instalments paid Rs. 165 crores: Rs. 140 towards cost ofDland, Rs. 20 crores towards earnest money deposit and Rs. 5 crorestoward project development expenses – On 19.12.2011, decisionwas given by High Court in pending litigation in State of AndhraPradesh through Principal Secretary v. Pratap Karan that theGovernment of Andhra Pradesh did not have title to the projectland – During the years 2012 and 2013, Unitech called upon APIICEto execute the sale deed, handover the project site and ensure thatthe encumbrances on the project land are cleared in terms ofDevelopment Agreement so as to comply with its obligations – TheState of Andhra Pradesh was reorganised w.e.f. 02.06.2014 –Request was made to newly formed TSIIC (successor of APIIC) toFclarify the status – On 02.04.2015, Unitech sought release of earnestmoney deposit of Rs.20 crores in light of full payment ofconsideration – On 09.10.2015, Supreme Court in Pratap Karancase upheld the judgment of the High Court – Thereafter, on14.10.2015, Unitech requested APIIC and TSIIC, to refund all theamounts which were received in relation to the land together withGinterest and damages for the loss suffered by them – Writ petitionunder Art.226 was instituted before the High Court seeking a refundof Rs 165 crores together with interest at the SBI Prime LendingRate (“SBI- PLR”) from the date of payments – A Single Judge ofthe High Court allowed Unitech’s Writ Petition – Writ Appeal byTSIIC and the State of Telangana – The Division Bench of the HighH

Court while upholding order of Single Judge on liability of TSIICdirected refund of the principal sum of Rs 165 crores with interestfrom 14.10.2015 at the SBI-PLR, as opposed to the dates of paymentof installments, beginning from September 2007 – Appeal by Unitech– Held: Under the Development Agreement which was executedbetween APIIC and Unitech, APIIC was to transfer the landabsolutely free from all encumbrances by executing a sale agreement– The terms of the agreement were to prevail in the event of anyconflict with any other document which formed a part of the biddingprocess – Thus, the terms of the agreement were placed on thepedestal of the highest priority for interpretation, as compared toother documents, including the LoA – Under the terms of theDevelopment Agreement, APIIC was obligated to sell and transferthe land together with its right, title and interest free from allencumbrances “forthwith upon payment of the last installment ofthe total purchase price by the developer” – The fulfillment of theterms of the agreement was postulated on the availability of theland – The failure of title in the erstwhile APIIC and the Governmentof Andhra Pradesh attained finality upon the decision of SupremeCourt – The basic postulate on which the entire contract wasfounded stood nullified as a consequence of the failure of title –The agreement clearly provides that the ability of the Governmentof Andhra Pradesh/TSIIC to convey full title to the developer formsthe basis of the contract – The failure of title entitled Unitech toclaim a full refund together with compensatory payment, ascontractually defined – Further, the Development Agreement providesthat compensatory payment will be “from the date on which the firstpayment of project price” is made – The Division Bench was inerror in curtailing the right of Unitech to claim a refund with effectfrom the dates on which the respective payments were made –Unitech cannot be penalized for wanting to continue with theagreement, as APIIC navigated disputes over its claim to the land –While Unitech was put to notice of the existence of a litigation, theDevelopment Agreement which stipulated an encumbrance-freehandover also specified that its covenants would supersede all otherunderstandings and that its terms would rank as the first, in orderof interpretive priority – The judgment of the Division Bench suffersfrom a clear and patent error in restricting the liability of payinginterest w.e.f. 14.10.2015 – The liability must date back, in terms of A

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Athe Development Agreement, from the date on which the respectivepayments were made by Unitech – Interest at the contractual SBI-PLR rate has to be paid to Unitech – However, considering theposition of Unitech which knowingly entered into the DevelopmentAgreement with full knowledge of the pending litigation and withan intention to continue with the project after a delay of over sevenByears, up until a decision by this Court, the interest rate is payableto Unitech, without compounding.

Andhra Pradesh Reorganization Act, 2014: Apportionmentof the liabilities between the instrumentalities of the State of AndhraPradesh and Telangana – The land which is comprised in the projectCsite falls exclusively within the Telangana region as specified in thedemerger scheme – TSIIC shall refund the amounts due and payableto Unitech in terms of the present judgment – TSIIC would be atliberty to pursue its rights and remedies in accordance with lawover its claim for apportionment.

D

Stamp duty: Unstamped agreement – The DevelopmentAgreement, on the basis of which Unitech sought to avail itscontractual remedy has not been registered or assessed to stampduty – Under Article 3.1 of the Development Agreement, theobligation of paying registration fees and stamp duty is on UnitechE– Stamp Act is a fiscal measure enacted to secure the revenue forthe State, and not to arm the opponent with a weapon of technicality– Unitech’s claim to compensatory payment cannot be defeated onthe sole ground of the payment of stamp duty – Directions passed toimpound the Development Agreement and present it to the ChiefControlling Revenue Authority in the State of Telangana forFassessment of stamp duty and to the competent authority forregistration – The assessment shall be completed within thirty days– The appropriate stamp duty and registration charges shall be paidby TSIIC and be deducted from the refund due and payable toUnitech under the terms of this order.G

Constitution of India: Art.226 – Writ jurisdiction – Thejurisdiction under Art.226 is a valuable constitutional safeguardagainst an arbitrary exercise of state power or a misuse of authority– In determining as to whether jurisdiction should be exercised in acontractual dispute, the Court must, undoubtedly eschew, disputedHquestions of fact which would depend upon an evidentiary determination requiring a trial – But equally, it is well-settled thatthe jurisdiction under Art.226 cannot be ousted only on the basisthat the dispute pertains to the contractual arena – This is for thesimple reason that the State and its instrumentalities are not exemptfrom the duty to act fairly merely because in their business dealingsthey have entered into the realm of contract – Similarly, the presenceof an arbitration clause does oust the jurisdiction under Art.226 inall cases though, it still needs to be decided from case to case as towhether recourse to public law remedy can justifiably be invoked –Contract.

Constitution of India: Art.14 – The State and itsinstrumentalities are duty bound to act fairly under Art.14 of theConstitution – They cannot, even in the domain of contract, claiman exemption from the public law duty to act fairly – The State andits instrumentalities do not shed either their character or theirobligation to act fairly in their dealings with private parties in therealm of contract – Investors who respond to the representationsheld out by the State while investing in public projects are legitimatelyentitled to assert that the representations must be fulfilled and toenforce compliance with duties which have been contractuallyassumed.

Disposing of the appeals, the Court

Conclusion

Disposing of the appeals, the Court

HELD: 1. Article 23.1 of the Development Agreement inthe present case mandates the parties to resolve their disputesthrough an arbitration. However, the presence of an arbitrationclause within a contract between a state instrumentality and aprivate party has not acted as an absolute bar to availing remediesunder Article 226. If the state instrumentality violates itsconstitutional mandate under Article 14 to act fairly andreasonably, relief under the plenary powers of the Article 226 ofthe Constitution would lie. While exercising its jurisdiction underArticle 226, the Court is entitled to enquire into whether theaction of the State or its instrumentalities is arbitrary or unfairand in consequence, in violation of Article 14. The jurisdictionunder Article 226 is a valuable constitutional safeguard againstan arbitrary exercise of state power or a misuse of authority. Indetermining as to whether the jurisdiction should be exercisedin a contractual dispute, the Court must, undoubtedly eschew, AB

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Adisputed questions of fact which would depend upon an evidentiarydetermination requiring a trial. But equally, it is well-settled thatthe jurisdiction under Article 226 cannot be ousted only on thebasis that the dispute pertains to the contractual arena. This isfor the simple reason that the State and its instrumentalities arenot exempt from the duty to act fairly merely because in theirBbusiness dealings they have entered into the realm of contract.Similarly, the presence of an arbitration clause does oust thejurisdiction under Article 226 in all cases though, it still needs tobe decided from case to case as to whether recourse to a publiclaw remedy can justifiably be invoked. The jurisdiction underCArticle 226 was rightly invoked by the Single Judge and theDivision Bench of the Andhra Pradesh in this case, when thefoundational representation of the contract has failed. TSIIC, astate instrumentality, has not just reneged on its contractualobligation, but hoarded the refund of the principal and intereston the consideration that was paid by Unitech over a decade ago.DIt does not dispute the entitlement of Unitech to the refund of itsprincipal. [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 theEcontract between the parties was the availability of the land whichcomprised the project site. The LoA dated 28 November 2007,stated that the allotment of land was subject to the outcome ofthe pending appeal before the High Court of Andhra Pradesh.The dispute over the title of the Government of Andhra Pradeshwas the subject of the pending litigation. At the same time, theFLoA mandated that Unitech must pay the amount stipulated -including the purchase price of Rs.145 crores for the land as wellas the project development expenses. A failure to do so wouldconstitute a significant event of default resulting in a forfeiture ofthe earnest money deposit. Acting on the LoA, Unitech did inGfact comply with its obligation to pay, having paid a total amountof Rs.165 crores towards the purchase price, besides the earnestmoney deposit and project development expenses. TheDevelopment Agreement which was executed between APIICand Unitech contains specific representations to the effect thatAPIIC was authorized to transfer and deliver the project siteH

admeasuring 350 acres on an outright sale basis. Under theDevelopment Agreement, APIIC was to sell and transfer the landabsolutely together with its right, title and interest, free from allencumbrances by executing a sale agreement. The terms of theagreement were to prevail in the event of any conflict with anyother document which formed a part of the bidding process. Theterms of the agreement were placed on the pedestal of the highestpriority for interpretation, as compared to other documents,including the LoA. Under the terms of the DevelopmentAgreement, APIIC was obligated to sell and transfer the landtogether with its right, title and interest free from all encumbrances“forthwith upon payment of the last installment of the totalpurchase price by the developer”. That Unitech paid the totalpurchase price is not in dispute. The obligation assumed by APIICto handover possession together with title upon the payment ofthe last installment of the purchase price unequivocally emergesfrom Article 3.1 and Article 4.1 of the Development Agreement.The fulfillment of the terms of the agreement was postulated onthe availability of the land. [Para 34][1099-B-H; 1100-A]

3. The failure of title in the erstwhile APIIC and theGovernment of Andhra Pradesh attained finality upon the decisionof this Court in State of Andhra Pradesh Through PrincipalSecretary v. Pratap Karan. The basic postulate on which the entirecontract was founded stood nullified as a consequence of the failureof title. The agreement clearly provides that the ability of theGovernment of Andhra Pradesh/TSIIC to convey full title to thedeveloper forms the basis of the contract. The failure of titleentitles Unitech to claim a full refund together with compensatorypayment, as contractually defined. The claim does not raise adisputed question of fact requiring an evidentiary determination.The finding in regard to the entitlement of Unitech to a refund isunexceptionable and has correctly not been called into questionat the stage of the hearing, despite the grounds which were raisedin the pleadings in the proceedings initiated under Article 136 ofthe Constitution by TSIIC and the State of Telangana. APIIC, asan instrumentality of the erstwhile Government of AndhraPradesh, invited bids for a public project. Having invited privateentrepreneurs to submit bids on stipulated terms and conditions, AB

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Ait must be held down to make good its representations. The Stateand its instrumentalities are duty bound to act fairly under Article14 of the Constitution. They cannot, even in the domain of contract,claim an exemption from the public law duty to act fairly.The Stateand its instrumentalities do not shed either their character ortheir obligation to act fairly in their dealings with private partiesBin the realm of contract. Investors who respond to therepresentations held out by the State while investing in publicprojects are legitimately entitled to assert that the representationsmust be fulfilled and to enforce compliance with duties which havebeen contractually assumed. [Para 37][1101-F-G; 1102-A-E]

CState of Andhra Pradesh through Principal Secretaryv. Pratap Karan (2016) 2 SCC 82 – referred to.

4. The Single Judge of the Andhra Pradesh High Court, inthe course of the judgment dated 23 October 2018 computed ason 30 September 2018, an amount of Rs.660.55 crores as dueDand payable. Interest on the basis of the SBI-PLR wascompounded annually in terms of the provisions of theDevelopment Agreement. The Single Judge noted that therespondents to the writ proceedings had not disputed (i) the datesof payment or (ii) interest at the rate of the SBI-PLR and noEmaterial to contradict the computation was submitted. In appeal,the Division Bench however directed that the claim for interestshould be computed from 14 October 2015. This was the date onwhich Unitech addressed a communication seeking a refund ofthe ‘compensatory payment’ following the decision of this Courton 9 October 2015 on the absence of title to the land in theFGovernment of Andhra Pradesh. The Division Bench hasproceeded on the rationale that Unitech was placed on noticethat the award of the contract was subject to the outcome of theappeal in the High Court; and Unitech was aware of the outcomeof the first appeal yet, as a developer, it wanted to continue withGthe project. The above circumstances have no bearing on whetherUnitech is entitled to a refund of moneys from the date of initialpayment. The entitlement of Unitech to a refund of the amountspaid is embodied in the terms of the contract which envisage thata default on the part of APIIC in conveying the land or theexistence of political force majeure events would furnish a validH

basis for the “compensatory payment”. Moreover, the date fromwhich compensatory payment has to be made is specificallyprovided : the Development Agreement provides that it will be“from the date on which the first payment of project price” ismade. The Division Bench was in error in curtailing the right ofUnitech to claim a refund with effect from the dates on which therespective payments were made. Obviously, Unitech had enteredinto the project since it wished to pursue it. Unitech cannot bepenalized for wanting to continue with the agreement, as APIICnavigated disputes over its claim to the land. While Unitech wasput to notice of the existence of a litigation, the DevelopmentAgreement which stipulated an encumbrance-free handover alsospecified that its covenants would supersede all otherunderstandings and that its terms would rank as the first, in orderof interpretive priority. The judgment of the Division Benchsuffers from a clear and patent error in restricting the liability ofpaying interest with effect from 14 October 2015. The liabilitymust date back, in terms of the Development Agreement, fromthe 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 theDevelopment Agreement stipulating compensatory payment atthe SBI-PLR, compounded annually, becomes suspect. Clause17 of the LoA expressly mentioned that the title of the land is lispendens and subject to the outcome of the proceedings pendingbefore the Andhra Pradesh High Court. Unitech considered thiscircumstance and consciously entered into the DevelopmentAgreement. It continued to liaise with APIIC after an unfavorablejudgement of the Andhra Pradesh High Court and did not issue atermination notice, until the title was conclusively denied bya 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 SCC424 (38) – relied on.

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A5. Considering the position of Unitech which knowinglyentered into the Development Agreement with full knowledge ofthe pending litigation and with an intention to continue with theproject after a delay of over seven years, up until a decision bythis Court, the interest rate is payable to Unitech, withoutcompounding. [Para 38][1105-B]B

Apportionment of the liabilities between theinstrumentalities of the state of Andhra Pradesh and Telangana 6.1 The Single Judge has imposed the liability to refund onTSIIC clarifying however, that it is “entitled to recover it fromCthe State of Andhra Pradesh and the APIIC, if under law they areentitled to do so”. The Division Bench has not interfered withthe above direction. [Para 39][1105-C-D]

6.2 Section 68 of the Re-organization Act is comprised inPart VII which enunciates “Provisions as to CertainDCorporations”. The corporations which are listed out in the IX[th]Schedule include APIIC which appears at Serial No.17. Section68(2) states that the assets, rights and liabilities of the companiesand corporations referred to in sub-Section (1) shall be re-apportioned between the successor states in the manner providedin Section 53. [Para 40][1105-D-E, G-H]

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6.3 Section 65 allows for the successor states of Telanganaand Andhra Pradesh to agree on the manner in which the benefitor burden of any particular asset or liability can be apportioned.Section 66 empowers the Central Government on a referencemade, within three years from the appointed date, by either ofFthe successor states to order an adjustment or allocation of theliability. 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 theexisting State of Andhra Pradesh in the companies specified inGthe IX[th ]Schedule between the successor States. APIIC has broughton record the certificate issued by the Managing Directors ofTSIIC and APIIC recording the auditing of assets and liabilitiesas on 1 June 2014. [Para 41][1107-C-D]

6.5 Schedule I provides for the Zonal offices pertaining toHTelangana 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 exclusivelywithin the Telangana region as specified in the demerger scheme.TSIIC shall refund the amounts due and payable to Unitech interms of the present judgment. TSIIC would be at liberty topursue its rights and remedies in accordance with law over itsclaim for apportionment. [Paras 42, 43][1109-A-C]

7. TSIIC and the State of Telangana have brought to ournotice that the Development Agreement, on the basis of whichUnitech has sought to avail its contractual remedy has not beenregistered or assessed to stamp duty. Under Article 3.1 of theDevelopment Agreement, the obligation of paying registrationfees and stamp duty is on Unitech. It is well-settled law that theStamp Act is a fiscal measure enacted to secure the revenue forthe State, and not to arm the opponent with a weapon of technicality.Unitech’s claim to compensatory payment cannot be defeated onthe sole ground of the payment of stamp duty. The DevelopmentAgreement shall have to be impounded and be presented to theChief Controlling Revenue Authority in the State of Telanganafor assessment of stamp duty and to the competent authority forregistration. The assessment shall be completed within thirtydays. The appropriate stamp duty and registration charges liableto be paid in terms of the determination shall be paid by TSIICand be deducted from the refund due and payable to Unitech underthe terms of this order. [Para 44][1109-D-F]

8. The Development Agreement stands impounded and shallbe forwarded by TSIIC within two weeks to the competentauthority for registration and for assessment of stamp duty. Theassessment to stamp duty and formalities for registration shallbe completed within one month. The amount payable towardsstamp duty, penalty (if any) and registration charges shall be paidinitially by TSIIC into the account of the competent authoritywithin two weeks of the determination and shall be adjustedagainst the refund payable by TSIIC to Unitech; The appeal filedby Unitech, arising out of SLP(C) No 9019 of 2019 is allowed inpart by setting aside the direction of the Division Bench of theHigh Court which confined the liability to pay interest only witheffect from 14 October 2015; Unitech shall be entitled to a refund AB

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Aof an amount of Rs.165 crores together with interest at the SBI-PLR commencing from the respective dates of payment, computedin accordance with the provisions of the Development Agreement(except for compounding); The amount which has been depositedin the Registry of this Court in pursuance of the interim ordershall be disbursed to Unitech together with accrued interest. TheBbalance due and payable under the terms of this judgment shallbe refunded by TSIIC to Unitech within two months from thereceipt of a certified copy of this judgment; and In terms of thedirections of the Single Judge of the High Court, TSIIC will be atliberty to pursue its remedies for apportionment in relation toCAPIIC in accordance with law. No opinion is expressed on themerits or tenability of the claim for apportionment asserted byTSIIC. [Para 45][1109-G-H; 1110-A-F]

ABL International Ltd. v. Export Credit GuaranteeCorporation of India (2004) 3 SCC 553; State of UP v.DSudhir Kumar 2020 SCC online SC 847; Oriental KuriesLtd. v. Lissa (2019) 19 SCC 732; BhubaneshwarDevelopment Authority v. Susanta Kumar Mishra (2009)4 SCC 684 : [2009] 2 SCR 149 – referred to.

GFrom the Judgment and Order dated 01.04.2019 of the High Courtfor the State of Telangana at Hyderabad in Writ Appeal No. 1594 of2018.

With C.A. Nos. 318 and 319 of 2021

H

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, SoumyaChakraborty, Sr. Advs., S. Udaya Kumar Sagar, Ms. Sweena Nair,Ms. Sharu Anna John, Ms. Anubha Agrawal, Arup Banerjee, MaheshAgarwal, Anuroop Chakravarti, Ms. Neeha Nagpal, AnshumanSrivastava, 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 theinstrumentalities of the state of Andhra Pradesh andTelangana F.Summation

A. Background

1. The appeals arise from a judgment dated 1 April 2019 of aDivision Bench of the High Court for the State of Telangana. Threeappeals 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.

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A2. In September 2007, the Andhra Pradesh Industrial InfrastructureCorporation Ltd. (“APIIC”) invited bids to “develop, design andconstruct” an integrated township project / multi services aerospacepark in the area of about 350 acres of land in Nadergul Village,Saroornagar Mandal, Ranga Reddy District. In pursuance of its pressrelease, APIIC floated a bid document.B

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3. On 28 November 2007, the bid submitted by Unitech wasaccepted upon payment of an earnest money deposit of 20 crores. Itwas contractually required to pay an amount of Rs 140 crores as projectland cost and Rs 5 crores towards project development expenses. Alitigation in regard to the land was pending. While issuing a Letter ofCAward (“LoA”), APIIC made the allotment of the land subject to theoutcome of the pending litigation. The LoA stipulated that:

“17. The allotment of said land is subject to the outcome of theAppeal Suit No. 274/2007 in (OS No. 155/05), WP Nos. 19670/07, 20667/07 and 22043/07 pending before the Hon’ble High CourtDof Andhra Pradesh.”

4. Pursuant to accepting the LoA on 3 December 2007, Unitechpaid the first installment of Rs 15 crores towards the purchase price ofthe land. This was followed by the second installment for Rs 20 croreson 4 December 2007. On 27 December 2007, it deposited an amount ofERs 5 crores towards project development expenses. On 1 January 2008,it paid the third installment of Rs 35 crores towards the purchase priceof the land.

5. On 5 January 2008, APIIC while acknowledging the receipt ofthe three installments of Rs 70 crores towards the cost of land directedFthe Zonal Manager, Shamshabad Zone, Hyderabad to hand over theproject site to enable Unitech to commence survey and planning work.The fourth installment of Rs 35 crores towards the purchase price of theland was paid on 11 January 2008, while the fifth installment for anotherRs 35 crores was paid on 25 January 2008. Unitech paid, in the aboveGmanner, a total amount of Rs 165 crores: Rs 140 crores towards the costof land, Rs 20 crores towards earnest money deposit and Rs 5 crorestowards project development expenses.

6. On 19 August 2008, a Development Agreement was enteredinto between APIIC, Unitech and Nacre Gardens Hyderabad Limited, H

formerly known as (Unitech Hyderabad Township Limited), a specialpurpose vehicle formed to execute the project.

7. On 29 April 2011, APIIC issued a notice to show cause toUnitech to commence work on the project land. On 11 May 2011, Unitechrequested APIIC to intimate, within seven days, the steps being taken tohandover the land with reference to the provisions of Article 13.3(b) ofthe Development Agreement which mandated an encumbrance-freehandover. The response to APIIC’s show-cause notice dated 29 April2011 was further re-iterated in Unitech’s letter dated 14 May 2011 statingthat APIIC would have to first establish its title to the land and to removethe encumbrances, before work could commence.

8. On 21 May 2011, APIIC was informed that a ‘political forcemajeure event’ within the meaning of the Development Agreement hadtaken place. On 19 December 2011, the High Court of Andhra Pradeshin a proceeding titled as “Pratap Karan v Govt. of Andhra Pradesh[1],held that the Government of Andhra Pradesh did not have title to theproject land. Following the decision, Unitech by its communication dated27 March 2012 requested APIIC to clarify the position and to jointlyexplore 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 onaccount of reasons attributable to APIIC alone, the Developer issuffering financial losses and great hardship. You would appreciatethat financial institutions are being paid interest on the aggregateamounts paid to APIIC for the Project, and the Developer isconsidering further appropriate action.”

On 8 April 2013, Unitech again called upon APIIC to come forwardto execute the sale deed, handover the project site and ensure that theencumbrances on the project land are cleared in terms of theDevelopment Agreement so as to comply with its obligations at theearliest.

10. The State of Andhra Pradesh was re-organized into thesuccessor States of Andhra Pradesh and Telangana with effect from 2June 2014 under the provisions of the Andhra Pradesh Reorganization 1 Appeal Suit No. 274 of 2007 (Andhra Pradesh High Court)

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AAct, 2014. On 12 March 2015, Unitech addressed a letter to the newly-formed TSIIC (as successor of APIIC) seeking its intervention inclarifying the actual status of the extent of the land awarded to them, thecases against the erstwhile APIIC, physical handover of possession witha clear title and compensation for loss of time and opportunity. On 2April 2015, Unitech sought a release of the earnest money deposit of RsB20 crores, in light of the full payment of the consideration.

11. On 9 October 2015, a two-judge bench of this Court in itsdecision in State of Andhra Pradesh through Principal Secretary v.Pratap Karan[2] upheld the judgment of the High Court. After the decisionof this Court, Unitech requested APIIC and TSIIC, on 14 October 2015,Cto refund all the amounts which have been received in relation to theland together with interest and damages for the loss suffered by them,which included the cost of borrowing capital from banks, expenses forplanning and designing, opportunity costs and other costs for development.

12. On 24 December 2015, Unitech sought a refund of an amountDof Rs 457 crores towards principal and interest. This was followed byreminders on 31 May 2016 and 7 June 2016. An advocate’s notice wasalso issued on 13 June 2016.

13. Initially, invoking the jurisdiction under Article 32 of theConstitution, Unitech filed proceedings before this Court which wereEdisposed on 1 May 2017[3] by granting liberty to move the High Courtunder Article 226. A Writ Petition under Article 226 was instituted beforethe High Court for the State of Telangana[4] seeking a refund of Rs 165crores together with interest at the SBI Prime Lending Rate (“SBI-PLR”) from the date of payments. By a judgment and order dated 23FOctober 2018, a Single Judge of the High Court allowed Unitech’s WritPetition. The concluding paragraphs 61 to 64 of the judgment are extractedbelow:

“61. In the instant case, retention of the amounts paid by thepetitioners by the respondents is against the fundamental principlesGof justice, equity and good conscience and clearly amounts tounjust enrichment of the respondents particularly when such aretention is arbitrary and also violates Article 14 and 300-A of the H

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)

Constitution of India. Therefore, the respondents are boundto make restitution of the amounts claimed by petitionerswith interest as per SBI Prime Lending Rate as per Clause14.3.1 r/w Clause 1.1.(l) of the Development Agreementfrom the date of receipt of the said amount till payment.

“62. According to the petitioners, as on 30-09-2018, the followingamounts are payable:

Interest was calculated compounded annually @ SBI PLR Rate.Counsel for petitioner stated that since SBI PLR was onlyavailable till 5[th] 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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A63. The respondents have not disputed either the dates of thepayments or the interest at SBI Prime Lending Rate mentionedby the petitioners or placed any material to contradict the same.

64. Therefore I hold that the amount of Rs.660.55 croresis due and payable to the petitioners by respondents, whichBshall be paid by respondents to petitioner no.3 within 4weeks from today. However, they are entitled to recover it fromthe State of Andhra Pradesh and the APIIC, if under law they areentitled to do so. This does not preclude the petitioners fromclaiming other amounts from respondents towards damages underother heads, if they are entitled to do so under law.”C

14. A Writ Appeal was filed before the High Court by TSIIC andthe State of Telangana[5]. The Division Bench of the High Court upheldthe order of the Single Judge on the liability of TSIIC to refund an amountof Rs 165 crores to Unitech. However, the Division Bench directed aDrefund of the principal sum of Rs 165 crores with interest from 14 October2015 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 theconclusion that in the exercise of the writ jurisdiction under Article 226,Ethe Single Judge’s decision had aligned itself with the line of precedentof this Court; justifiably entertained the writ petition and directed a refundof the consideration. However, the order of the Single Judge directingthe payment of interest compounded inter alia at the SBI- PLR fromthe dates of payment commencing from September 2007 has beenFmodified in terms of the direction requiring the payment of interest at theSBI- PLR from 14 October 2015. In taking this view, the Division Benchheld:

(i) Under the LoA dated 28 November 2007, Unitech was putto notice that the award of the contract was subject to theGoutcome of a litigation which was pending before the HighCourt;

(ii) Even the advertisement for the award of the contractindicated that it would be subject to the outcome of a firstappeal which was pending before the High Court; H5 Writ Appeal No. 1594 of 2018 (Andhra Pradesh High Court)

(iii) Unitech accepted the award of the contract on 3 DecemberA2007 and made its payments between September 2007 andJanuary 2008;

(iv) The release of the earnest money deposit was sought on 2April 2015 and a refund of the entire amount paid withinterest, was claimed for the first time on 14 October 2015,after the judgment of the High Court attained finality throughthe decision of this Court dated 9 October 2015; and B

(v) Unitech was aware of the pending litigation and wasawaiting the outcome of the civil appeal and the tenor ofthe correspondence indicates that they wished to continuewith the project.

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On the above premises, the Division Bench of the High Courttook a considered view that Unitech’s request for a refund on 14 October2015, after the decision of this Court confirming that the Government ofAndhra Pradesh had no title to the land, should mark the commencementof TSIIC’s liability to pay interest.

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B. Proceedings before this Court

16. Notice was issued by this Court in the Special Leave Petitionfiled by Unitech on 15 April 2019.

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17. On 13 February 2020, this Court recorded that a new Boardof Directors had taken charge of the business of Unitech limited. At thisstage, it must be noted that the Board of Directors of Unitech has beensuperseded and replaced by a Board appointed by the Union government.

18. On 5 March 2020, when the proceedings came up before thisCourt, besides the Special Leave Petition filed by Unitech limited and itssubsidiary, the Court was seized with two other Special Leave Petitionsfiled by TSIIC and the State of Telangana, respectively. This Court notedthe submissions which were urged on behalf of TSIIC that following there-organization of the erstwhile State of Andhra Pradesh, a division ofthe assets and liabilities was required to be effected by the Centralgovernment under Section 71 of the Andhra Pradesh ReorganizationAct 2014, in the absence of which TSIIC could not alone be held liableto deposit the entire amount as ordered to be refunded by the HighCourt. This Court recorded the submission of TSIIC that it would deposit42 per cent of the principal sum of Rs 165 crores, amounting to Rs 69.30

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Acrores. It additionally directed that interest commencing from 14 October2015 must be deposited, at the rate and in the manner directed by theSingle Judge of the High Court. The order of this Court dated 5 March2020 reads thus:

“ ……Mr C S Vaidyanathan, learned senior counsel appearing onBbehalf of TSIIC contests the liability of TSIIC to meet the liabilityfor the outstanding, if any, that may be due from APIIC. In thiscontext, reliance has been placed on Section 68 of the AndhraPradesh Reorganisation Act 2014 which provides as follows:

“68. Provisions for various companies and corporations:- (1)CThe companies and corporations specified in the Ninth Scheduleconstituted for the existing State of Andhra Pradesh shall, onand from the appointed day, continue to function in those areasin respect of which they were functioning immediately beforethat day, subject to the provisions of this section.

D(2) The assets, rights and liabilities of the companies andcorporations referred to in sub-section (1) shall be apportionedbetween the successor States in the manner provided in section53.”

Section 71 contains the following provision:E“71. Certain provisions for companies:- Notwithstandinganything in this Part, the Central Government may, for each ofthe companies specified in the Ninth Schedule to this Act, issuedirections–

(a) regarding the division of the interests and shares of theFexisting State of Andhra Pradesh in the Company between thesuccessor States; (b) requiring the reconstitution of the Board of Directors ofthe Company so as to give adequate representation to thesuccessor States.”GAPIIC has been listed at Entry 17 of the Ninth Schedule to theAct.

The submission of Mr C S Vaidyanathan is that in the absence ofa division by the Central Government between the liability of APIICand TSIIC, as contemplated in Section 71 of the Act, TSIIC cannotH

be held liable for the entire amount merely on the ground that thelands fall within the jurisdiction of the successor State ofTelangana. The submission is that despite the objections whichwere raised on behalf of the TSIIC, APIIC was not impleaded asa party to the proceedings before the High Court.

Mr Tushar Mehta, learned Solicitor General of India has appearedboth in support of the Special Leave Petition which has been filedon behalf of Unitech Limited (which is now under the managementof a Board of Directors constituted by the Central Government)and to oppose the Special Leave Petitions, which have been filedby TSIIC.

At this stage, we direct that APIIC be impleaded as a party in allthe Special Leave Petitions. The amendment be carried out withina 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 withoutprejudice to the rights and contentions of TSIIC in theseproceedings, it will deposit forty-two per cent of the principal sumof Rs 165 crores before this Court, which works out to Rs 69.30crores. This amount shall be deposited within a period of fourweeks from today. In addition, we are of the view that since thereis effectively a money decree, TSIIC should also deposit interestcomputed on the aforesaid amount of Rs 69.30 crores, computedwith reference to 14 October 2015 as the commencement date,at the rate and in the manner which has been directed in the orderof the learned Single Judge of the High Court, by 30 April 2020.All amounts which are deposited by TSIIC shall be subject to theresult of the present proceedings and would be without prejudiceto its rights and contentions.

The amount, upon deposit, shall be invested in a fixed deposit of anationalized bank by the Registry of this Court. The newlyconstituted Board of Directors of Unitech Limited would be atliberty to make an application for withdrawal of the aforesaidamount.”

Notice has been issued in the Special Leave Petitions filed by theState of Telangana on 22 July 2019 and by TSIIC on 29 April 2019.

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A19. The appeals arising out of the three proceedings under Article136 of the Constitution have been heard together since they arise out ofcommon facts and the same transaction.

C. Salient features of the transaction documents

20. Before dealing with the rival submissions, it is necessary toBpreface our analysis with a reference to the salient aspects of thetransaction, leading to the award of the contract and the execution ofthe Development Agreement between APIIC and Unitech.

21. On 28 November 2007, the LoA was issued by APIIC toUnitech for the development of an integrated airport township / multiCservices aerospace park, Hyderabad on a public-private-partnership basis.Clause 3 of the LoA contemplated the payment of an amount of Rs 140crores towards the value of the land, payable in four tranches each ofRs 35 crores. Clause 3 of the LoA was in the following terms:

“3. Total Purchase Price.D

The Total Purchase Price for the Total Land shall be Rs.140 crores(Rupees one hundred and forty crores only). The value of theland is fixed at Rs.40 Lakhs per acre (Rupees Forty Lakhs peracre) and payable to APIIC as follows:

i)Rs.35 Crores (Rs. Thirty Five crores only) within 7 daysEfrom the issue of LOA to the Developer.

ii)Rs.35 Crores (Rs. thirty Five Crores only) to be paid within30 days from the date of 1[st] instalment by the developer.

iii)Rs.35 Crores (Rs. thirty five Crores only) within 15 daysFfrom the date of 2[nd] instalment by the developer.

iv)Rs.35 Crores to be paid within 15 days from the date of 3[rd]instalment by the developer.

Sale Deed will be executed by APIIC in favour of Special PurposeVehicle (SPV) only on receipt of rs.140 Crores from the SuccessfulGBidder/SPV, as per the instalments fixed above.

“All the payments mentioned above need to be strictly adhered toby the Developer/ SPV. In the event of default of any of theinstalments mentioned above, APIIC shall forthwith forfeit therespective amounts paid by the Bidder (in addition to EMD) unless H

APIIC has given any extension of time for any such payment.Any such default in payment by the Developer/ SPV may lead towithdrawal or cancellation of award of the project to the SuccessfulBidder without any obligation or liability on whatsoever accountto APIIC.

APIIC decision to withdraw or cancel award of project in suchdefault circumstances shall be final and binding on the Developer/SPV. The total Purchase Price may be adjusted based on theextent of the land verified during the joint inspection of therespective Developer and APIIC.

(illegible) will be handed over to SPV on, “as is where is basis” inparcels to such (illegible).”

Clause 12 contemplated the forfeiture of the Earnest MoneyDeposit and / or performance security in the event of a “significantevent 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 toAPIIC within the time as specified in this Letter of Award.”

22. Some of the salient provisions regarding transfer of land in theDevelopment Agreement dated 19 August 2008 executed betweenAPIIC and Unitech are set out below:

(i) The recitals to the agreement contained a specificrepresentation that APIIC was authorized to transfer anddeliver the project site admeasuring 350 acres:

“D) In terms of a Panchnama dated 8.5.2007 of theDeputy- Collector, Saroornagar Mandal, RR District hastransferred Acres 373-22 Guntas in Survey No. 613(New 119) at Nadergul Village to APIIC, and APIIC isauthorised- to transfer (on an outright sale basis) anddeliver the Project Site measuring Acres 350-00 Guntasto the Developer.”

(ii) APIIC covenanted to transfer and sell the land togetherwith its rights, title and interest free from all encumbrancesby 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 A

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belonging thereto/ connected therewith (but free of allEncumbrances), by executing a Sale Deed in favour ofthe Developer.”

23. (i) Article 1 contained definitions inter alia of the followingexpressions:

“h) “Applicable Rate” means the prime lending rate ofthe State Bank of India, compounded annually.

l) “Compensatory Payment” with reference to all or anyportion of the Project Site (the “Compensated Land”)as on a particular date (the “Reference Date”) for thepurposes of this Agreement including for the purposesof Clauses-14.3.1, 14.3.2, 17.6 and 23.3 hereof shallmean an amount equal to the sum aggregate of thefollowing:

(i) The Total Purchase Price in respect of theCompensated Land until the Reference Date, as perthe audited accounts of the Developer;

(ii) Interest-calculated at the rate of SBI PLR(“Interest”), on the Total Purchase Price of theCompensated, Land, from the date on which the firstpayment of purchase price in respect of the CompensatedLand is made (whether by way of an advance or anearnest money deposit) until the Reference Date.

All the above payments shall be denominated in Indianrupees.”

(ii) Article 1.7 stipulates an order of priorities under which, inthe event of a conflict between the agreement and any otherdocument, the former would prevail:

“1.7 In the event of any conflict between the terms ofthis Agreement and the Schedules or any otherdocument, this Agreement shall prevail. The documentforming part of bidding process leading to thisAgreement shall be relied upon and interpreted in thefollowing descending order of priority; (a) This-Agreement (Including any amendment /supplement to this Agreement) and the Detailed ProjectReport]

(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 transferthe land to the developer free from all encumbrances, uponthe developer’s payment of the last installment of the totalpurchase price:

“3.1 APIIC shall, forthwith upon payment of the lastinstalment of the Total Purchase Price by the Developersell and transfer the Land together with all rights, title,interest and benefits belonging thereto/ connectedtherewith (but free of all Encumbrances), by executinga Sale Deed in favour of the Developer, which shall beregistered with the concerned Registrar / Sub Registrarof Assurances. The stamp duty and registration feespayable, if any, on the Sale Deed (subject to Article 8.6below) to be executed in favour of the Developer shallbe borne by the Developer;”

(iv) APIIC acknowledged the payment of Rs 140 crores towardsthe total purchase price and Rs 5 crores towards projectdevelopment expenses in Article 3.2.

(v) Under Article 4.1, the developer was to have exclusivepromotion and advertising rights in respect of the projectand under Article 4.2, could enjoy all rights, privileges andbenefits as are generally available to an owner of immovableproperty.

(vi) Simultaneously with the payment of the last installment ofthe total purchase price, APIIC was required to handoverto the developer:

(a) Ownership and title documents to the land; A

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(b) A certified copy of the government orderevidencing its ownership rights over the landtogether with a possession certificate issued bythe revenue department; and

(c) A declaration certifying that APIIC is the rightfulowner of the land which was in its possession.

(vii) Article 13.3 provided for the obligations of APIIC in thefollowing terms:

“13.3 Obligations of APIIC:

For the purpose of this Agreement, each of the followingshall be the “Significant APIIC Obligations” of APIIC;

a) to execute the Sale Deed within’ the specified timeframe, any contracts / document as may be required inaccordance with the terms of this Agreement for raisingof any finances in relation to the Project, and otherdocuments with the mutual consent of the parties asmay be required to be executed for the Project; (b) to handover the Land as specified in this Agreementwithout any Encumbrances and with the right of wayfor the purpose of Development by the Developer.

(c) to clear any Encumbrances in respect of any portionof the Project Site (other than those created by theDeveloper) at any point in time in accordance with theprovisions of this Agreement; (d) to facilitate provisions of External infrastructure ascontemplated in this Agreement.”

(viii) The consequences of default by APIIC were stipulated inArticle 14.3. Thy were envisaged in the following terms:

“14.3.1 In the event APIIC/ GOAP is unable to executeSale Deed in favour of the Developer in respect of theLand, within the time specified, APIIC shall, if so requiredby the Developer, pay Compensatory to the Developers,subject to stay /interim / injunctive / other orders issuedby High Court of Andhra Pradesh or any other competentcourt/ s.”

(ix) Article 14.3.4 stipulated that:

“14.3.4 Without prejudice to its rights and remedies theDeveloper shall in no event be (a) liable for failure tomeet any of its obligations under this Agreement in theevent such failure could be attributed to (i) a default ordelay on the part of APIIC in fulfillment of any theirrespective obligations under Article 13.3 of thisAgreement and/ or (ii) Encumbrances or Title Issues onany portion of the Land, which may have MaterialAdverse Effect on the Project and/ or (iii) Occurrenceof Force Majeure Events, and (b) required to pay anyinterest or make any payment (including Revenue Share)or provide any performance / bank guarantee or othersecurity to APIIC during (i) the continuance of anydefault on delay on the part of APIIC in fulfillment oftheir obligations under Article 13.3 of this Agreementthe Project Agreements, and/ or (ii) the period when thedevelopment of Project is impacted due to Force Majeureevents & Title Issues on the Project Site.”

(x) Article 17 of the Development Agreement containsstipulations in regard to force majeure events. Article17.2(a) defined ‘political force majeure events’:

“17.2 (a) Political Force Majeure Events, comprisingActs of War, invasions, armed conflicts, terrorism, riots,strikes, lockouts, curfews, restraints, acts of Government(including expropriation or compulsory acquisition of anyProject Assets), or Change in Law (such as change inpolicies of Gol in relation to townships, foreign directinvestment), which event/s significantly impact theProject, direct litigation related to APIIC’s / GoAP’stitle to the Project Site), stay/interim/ injunctive/other orders issued by the Court, unlawful or un-authorised or without jurisdiction revocation of or refusalto renew or grant without valid cause any consent orapproval required by the Developer or any of the otherPerson to perform their respective obligations under theProject Agreements (provided that such delay,modification, denial, refusal or revocation did not result ABC

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1090SUPREME COURT REPORTS

from the Developer’s or any of its contractor’s inabilityor 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 materiallyaffect the implementation of the Project.”

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(xi) Article 17.6 stipulates that in the event of a political forcemajeure event continuously impacting upon the project asa material adverse effect for over nine months, the developerwould be entitled to issue a notice of termination.

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Upon such termination, APIIC was required to pay the‘compensatory payment’ to the developer:

“17.6 Termination: Either party to this Agreement mayissue a notice of termination of this Agreement if a Non-Political Force Majeure Event (or its direct impact) hasDresulted in Material Adverse Effect on the Project andhas continued for more than Nine (9) months from thedate of occurrence thereof. On the other hand Developershall be solely entitled (but not obligated) to issue noticeof Termination of this Agreement if a Political ForceEMajeure Event (or its direct impact) has resulted inMaterial Adverse Effect on the Project and has continuedfor more than Nine (9) months from the date ofoccurrence thereof. Upon any such termination of thisAgreement due to Political Force Majeure event, APIICwill pay the Compensatory Payment (less any insuranceFproceeds recovered by the Developer), to the Developersimultaneously with the Developer handing back theUnsold Property to APIIC.”

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D. Submissions of the parties

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D. Submissions of the parties

24. Mr N Venkataraman, learned Additional Solicitor General,Gappearing on behalf of the management of Unitech (appointed by theUnion of India), emphasized the following undisputed facts:

(i) Title was never conveyed by APIIC to Unitech In terms ofthe Development Agreement; H

that:

(ii) By the judgment of this Court dated 9 October 2015, theAdispute over the title of the Government of Andhra Pradeshover the project land was conclusively set at rest with anegative finding on title;

(iii) An amount of Rs 165 crores has been deposited by Unitechsince September 2007 with the Government of AndhraBPradesh; and

(iv) The project cannot be implemented in the absence of titleto the lands in the State Government.

25. Relying on a line of precedent of this Court, the ASG submitted C

(a) The entire project was premised on the conveyance of titleto the land, free from all encumbrances by APIIC toUnitech; (b)A solemn representation was held out in the DevelopmentAgreement that APIIC was in a position to convey title andpossession to Unitech following the award of the contractto it as a developer; D

(c) Unitech fulfilled the peremptory obligation to deposit anamount of Rs 165 crores upfront; E

(d) ‘Political force majeure events’ included litigation relatingto the title of APIIC or the Government of Andhra Pradesh.On the coming into being of a political force majeure eventwhich caused a material adverse impact on the project forover nine months, Unitech was entitled to compensatorypayment from APIIC; F

(e) Upon the failure of title of the Government of AndhraPradesh resulting from the judgment of this Court dated 9October 2015, the developer became entitled to a refund ofthe amounts paid together with interest compounded annuallyat the SBI-PLR; G

(f) The existence of an arbitration clause would not divest theHigh Court of its jurisdiction under Article 226 of theConstitution to order refund with interest, where a privatedeveloper who has entered into an agreement on a solemn H

Arepresentation of the existence of title in the Government isunable to proceed with the project due to a failure of title; (g)The exercise of the writ jurisdiction under Article 226 in acontractual matter is not ruled out particularly in the presentcase where there is absolutely no dispute in regard to theBbasic facts; (h)The Single Judge of the High Court had justifiably awardedinterest from the date of the first payment by Unitech in2007. The Division Bench erred in restricting the grant ofinterest from 14 October 2015; C

(i) The litigation in regard to the title of the Government ofAndhra Pradesh had nothing to do with the moneys paid byUnitech. When the moneys were paid in 2007, the refundof the amount must date back with reference to the date ofthe initial payment. Therefore, the interest must be computedDfrom the date on which each of the installments were paid;and (j)When the LoA was issued on 28 November 2007, thejudgment dated 23 April 2007 held the field, which was infavour of the Government of Andhra Pradesh. ItsEsubsequent reversal would entitle the developer to a refundwith interest, as contracted from the date of the initialpayment.

26. Mr C S Vaidyanathan, learned Senior Counsel appeared onbehalf of the State of Telangana and TSIIC. At the outset, he hasFsubmitted that TSIIC and the State of Telangana do not dispute:

(i) The maintainability of a writ petition under Article 226 beforethe High Court; and

(ii) The fact that the land comprised within the project site isnot available for utilization for the project.

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The two areas on which the submissions of Mr C S Vaidyanathan,learned Senior Counsel have been confined are: firstly, whether interestat the SBI-PLR and the date from which interest has been awarded bythe Division Bench of the High Court are justified; and secondly, whetherthe High Court was justified in imposing the entire liability to effect theHrefund on TSIIC.

27. On the award of interest, the submission is that:

(i) The LoA dated 28 November 2017 furnished notice toUnitech of the pendency of the litigation;

(ii) Unitech and its SPV were conscious of the pendency ofthe appeal before the High Court arising out of the judgmentdated 30 April 2007, which had ruled in favour of the title ofthe Government of Andhra Pradesh;

(iii) Unitech continued to pursue the project and did not claimpolitical force majeure, until after the decision of this courton 09 October 2015;

(iv) In any event, the High Court has brought about a justbalancing of equities by granting interest from the date ofthe decision of this Court namely 14 October 2015; and

(v) The rate of interest should be suitably scaled down fromthe SBI- PLR.

The above submissions in regard to the payment of interest; thedate from which interest should be payable and the appropriate rate ofinterest, were postulated on the liability to refund the principal amount toUnitech. As a matter of fact, it has been expressly stated during thecourse of the submissions that the liability to refund is not being contested.

28. The second limb of submissions is that the liability to refundthe principal amount together with interest cannot be imposed on TSIICalone. TSIIC argues that the liability to refund the principal sum togetherwith interest to Unitech has to be apportioned between TSIIC and APIICin terms of the provisions contained in the Andhra Pradesh ReorganizationAct 2014. The submission is elaborated along the following lines:

(i) TSIIC has deposited an amount of Rs.127.53 crores beforethis Court in pursuance of the interim order dated 5 March2020, out of which Rs.69.30 crores represents the principaland Rs.58.23 crores is towards interest;

(ii) Section 68 of the Reorganization Act stipulates that thecompanies specified in the IX[th] Schedule (including APSIIC)constituted for the erstwhile State of Andhra Pradesh wouldcontinue to function in those areas in respect of which theywere functioning immediately before the date of re- A

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organization. Under sub-section(2) of Section 68, the assets,rights and liabilities of the companies forming a part of theIX[th] Schedule are required to be apportioned between thesuccessor states, in the manner indicated in Section 53; A

(iii) Under Section 71, the Central Government is empoweredBto issue directions in respect of the companies specified inthe IX[th] Schedule inter alia for dividing the interest andshares of the existing State of Andhra Pradesh betweenthe successor States;

(iv) Section 65 allows for an apportionment of assets andCliabilities by agreement, while Section 66 confers power onthe Central government to order an allocation or adjustmentin certain cases;

(v) Though the Central government constituted a Committeefor the distribution of assets, it has not issued any directions,Ddespite the committee submitting its recommendations, inview of the pendency of a petition under Article 32 of theConstitution before this Court; and

(vi) Section 2(h) of the Re-organization Act provides for apopulation ratio of 58.32 : 41.68 in relation to the States ofEAndhra 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 therefund due to Unitech and the balance should be directedto be shared by APIIC representing the successor State ofAndhra Pradesh based on the “normal sharing as per theFpopulation ratio”.

29. During the course of these proceedings, APIIC was directedto be impleaded. APIIC has entered appearance and filed its own counteraffidavit. Mr Anuroop Chakravarti, learned Counsel appearing on behalfof the APIIC, has opposed the submissions urged on behalf of the StateGof Telangana and TSIIC that the liability to refund the principal andinterest must be apportioned between TSIIC and APIIC. APIIC hassubmitted that:

(i) Before the appointed date of 2 June 2014, determined underthe Re-organization Act, a final audit was completed on 1

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June 2014 and a joint certificate was issued by the ManagingDirectors of TSIIC/APIIC; A

(ii) The certificate issued on behalf of TSIIC and APIIC by itsManaging Directors records that all the assets and liabilitieshaving a bearing in the balance sheet as on 1 June 2014have been audited and included in the demerger schemeBand that all assets and liabilities were duly apportionedbetween Andhra Pradesh and Telangana under the Re-organization Act; and

(iii) Under the scheme of demerger/apportionment, the liabilityin respect of the dues payable to Unitech has to be borneCby TSIIC. This would be evident from the terms andconditions which have been spelt out in Part II of the thirdSchedule. The Schedule elucidates that the project site whichforms the subject matter of the Development Agreementwas a part of the area which falls within the jurisdiction ofTSIIC. The liability by the terms of the demerger schemeDis that of TSIIC.

30. The Special Leave Petition[6] which was filed before this Courtby TSIIC raised several objections to the correctness of the order passedby the High Court. Among the grounds which were urged in support ofthe Special Leave Petition were the following:

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(i) The High Court ought not to have entertained a writ petitionunder Article 226 of the Constitution “in a pure contractualdispute”;

(ii) The Development Agreement contains an arbitrationagreement in Article 23.1; F

(iii) TSIIC can provide the land to Unitech and hence a directionfor refund with interest ought not to have been given;

(iv) There was a violation by Unitech of the terms of the biddocument and the LoA and the Development Agreementdeviated from the bid and the LoA; G

(v) Unitech bid for the project and accepted the LoA with fullknowledge of the pending litigation over title to the land 6 SLP (C) No. 10135 of 2019

Aforming a part of the agreement, and agreed to await theoutcome of the litigation; and

(vi) APIIC entered into the agreement with Unitech and oughtto share the liabilities in the population ratio of approximately58:42, as provided under the Andhra Pradesh Re-organizationBAct 2014.

31. The State of Telangana, in its submissions before this Court inthe Special Leave Petition had similarly assailed the judgment of theHigh Court on several grounds including the following :

(i) The claim for refund is based on an unregisteredCDevelopment Agreement which is invalid;

(ii) The land which is comprised in the project site can be madeavailable for the project as the land owners have agreed totransfer the land to the Government of Telangana;

(iii) The terms and conditions of the LoA were not compliedDwith by Unitech;

(iv) In view of the arbitration agreement, a writ petition underArticle 226 could not be maintained; and

(v) The liability, if any, has to be shared between the successorstates of Andhra Pradesh and Telangana in the ratio of 58:42.EE. Analysis E.1. Maintainability of the writ petition under Article 226

32. Much of the ground which was sought to be canvassed in thecourse of the pleadings is now subsumed in the submissions which haveFbeen urged before this Court on behalf of the State of Telangana andTSIIC. As we have noted earlier, during the course of the hearing, learnedSenior Counsel appearing on behalf of the State of Telangana and TSIICinformed the Court that the entitlement of Unitech to seek a refund isnot questioned nor is the availability of the land for carrying out theproject being placed in issue. Learned Senior Counsel also did not agitateGthe ground that a remedy for the recovery of moneys arising out acontractual matter cannot be availed of under Article 226 of theConstitution. However, to clear the ground, it is necessary to postulatethat recourse to the jurisdiction under Article 226 of the Constitution isnot excluded altogether in a contractual matter. A public law remedy isavailable for enforcing legal rights subject to well-settled parameters.H

33. A two judge Bench of this Court in ABL International Ltd.v. Export Credit Guarantee Corporation of India[7] [ABLInternational] analyzed a long line of precedent of this Court[8] to concludethat writs under Article 226 are maintainable for asserting contractualrights against the state, or its instrumentalities, as defined under Article12 of the Indian Constitution. Speaking through Justice N Santosh Hegde,the Court held:

“27. …the following legal principles emerge as to the maintainabilityof a writ petition:

(a) In an appropriate case, a writ petition as against a State or aninstrumentality of a State arising out of a contractual obligation ismaintainable.

(b) Merely because some disputed questions of fact arise forconsideration, same cannot be a ground to refuse to entertain awrit petition in all cases as a matter of rule.

(c) A writ petition involving a consequential relief of monetaryclaim is also maintainable.”

This exposition has been followed by this Court, and has beenadopted by three-judge Bench decisions of this Court in State of UP v.Sudhir Kumar[9 ]and Popatrao Vynkatrao Patil v. State ofMaharashtra[10]. The decision in ABL International, cautions that theplenary power under Article 226 must be used with circumspection whenother remedies have been provided by the contract. But as a statementof principle, the jurisdiction under Article 226 is not excluded in contractualmatters. Article 23.1 of the Development Agreement in the present casemandates the parties to resolve their disputes through an arbitration.However, the presence of an arbitration clause within a contract betweena state instrumentality and a private party has not acted as an absolutebar to availing remedies under Article 226.[11] If the state instrumentalityviolates 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 FinancialCorporation. v. Lotus Hotels (P) Ltd, (1983) 3 SCC 379; Gunwant Kaur v. MunicipalCommittee, 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

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Areasonably, relief under the plenary powers of the Article 226 of theConstitution would lie. This principle was recognized in ABLInternational:

“28. However, while entertaining an objection as to themaintainability of a writ petition under Article 226 of the ConstitutionBof India, the court should bear in mind the fact that the power toissue prerogative writs under Article 226 of the Constitution isplenary in nature and is not limited by any other provisions of theConstitution. The High Court having regard to the facts of thecase, has a discretion to entertain or not to entertain a writ petition.The Court has imposed upon itself certain restrictions in theCexercise of this power. (See Whirlpool Corpn. v. Registrar of TradeMarks [(1998) 8 SCC 1] .) And this plenary right of the HighCourt to issue a prerogative writ will not normally beexercised by the Court to the exclusion of other availableremedies unless such action of the State or itsDinstrumentality is arbitrary and unreasonable so as to violatethe constitutional mandate of Article 14 or for other validand legitimate reasons, for which the Court thinks itnecessary to exercise the said jurisdiction.”

Therefore, while exercising its jurisdiction under Article 226, theECourt is entitled to enquire into whether the action of the State or itsinstrumentalities is arbitrary or unfair and in consequence, in violation ofArticle 14. The jurisdiction under Article 226 is a valuable constitutionalsafeguard against an arbitrary exercise of state power or a misuse ofauthority. In determining as to whether the jurisdiction should be exercisedFin a contractual dispute, the Court must, undoubtedly eschew, disputedquestions of fact which would depend upon an evidentiary determinationrequiring a trial. But equally, it is well-settled that the jurisdiction underArticle 226 cannot be ousted only on the basis that the dispute pertainsto the contractual arena. This is for the simple reason that the State andits instrumentalities are not exempt from the duty to act fairly merelyGbecause in their business dealings they have entered into the realm ofcontract. Similarly, the presence of an arbitration clause does oust thejurisdiction under Article 226 in all cases though, it still needs to be decidedfrom case to case as to whether recourse to a public law remedy canjustifiably be invoked. The jurisdiction under Article 226 was rightlyHinvoked by the Single Judge and the Division Bench of the Andhra Pradesh in this case, when the foundational representation of the contracthas failed. TSIIC, a state instrumentality, has not just reneged on itscontractual obligation, but hoarded the refund of the principal and intereston the consideration that was paid by Unitech over a decade ago. Itdoes 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 contractbetween the parties was the availability of the land which comprised theproject site. The LoA dated 28 November 2007, stated that the allotmentof land was subject to the outcome of the pending appeal before theHigh Court of Andhra Pradesh. The dispute over the title of theGovernment of Andhra Pradesh was the subject of the pending litigation.At the same time, the LoA mandated that Unitech must pay the amountstipulated - including the purchase price of Rs.145 crores for the land aswell as the project development expenses. A failure to do so wouldconstitute a significant event of default resulting in a forfeiture of theearnest money deposit. Acting on the LoA, Unitech did in fact complywith its obligation to pay, having paid a total amount of Rs.165 crorestowards the purchase price, besides the earnest money deposit and projectdevelopment expenses. The Development Agreement which wasexecuted between APIIC and Unitech contains specific representationsto the effect that APIIC was authorized to transfer and deliver the projectsite admeasuring 350 acres on an outright sale basis. Under theDevelopment Agreement, APIIC was to sell and transfer the landabsolutely together with its right, title and interest, free from allencumbrances by executing a sale agreement. The terms of theagreement were to prevail in the event of any conflict with any otherdocument which formed a part of the bidding process. The terms of theagreement were placed on the pedestal of the highest priority forinterpretation, as compared to other documents, including the LoA. Underthe terms of the Development Agreement, APIIC was obligated to selland transfer the land together with its right, title and interest free fromall encumbrances “forthwith upon payment of the last installment of thetotal purchase price by the developer”. That Unitech paid the totalpurchase price is not in dispute. The obligation assumed by APIIC tohandover possession together with title upon the payment of the lastinstallment of the purchase price unequivocally emerges from Article3.1 and Article 4.1 of the Development Agreement. The fulfillment ofthe terms of the agreement was postulated on the availability of the A

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Aland. Apart from the terms of the agreement which have already beenemphasized, representations in regard to the title to the land are expresslycontained in Annexure 1C of the Development Agreement which readsas follows:

“APIIC hereby represents and warrants to the Developer andUnitech that:

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1. APIIC is absolutely seized and possessed of and is otherwisewell and sufficiently entitled to the Project site. GOAP has freeclear and marketable titled to the Project site, and that noEncumbrance of any nature whatsoever exists in respect of theProject site. APIIC was in possession and occupation of theCProject site until the date of execution of the DevelopmentAgreement and that peaceful physical vacant possession andoccupation of the Project site has been handed over to theDeveloper in terms of the Development Agreement. APIIC hasbeen duly authorized to enter into the Development AgreementDand perform all of its obligations there under….”

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35. The consequences of default are expressly stipulated in theagreement. Article 17 stipulates force majeure events. Article 17.2provides for political force majeure events comprising inter alia “directlitigation 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 notbe 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 ofAPIIC in fulfilling its obligations. Similarly, the developer would not beheld liable as a result of encumbrances or title issues on any portion ofthe land which may have a material adverse effect on the project or asa consequence of force majeure events. Article14.3.1 stipulates that inthe event that APIIC/Government of Andhra Pradesh were unable toexecute the sale deed in favour of the developer in respect of the landwithin the time specified, APIIC shall, if so required for the developer,make compensatory payment subject to court orders. In the event of apolitical force majeure event, Unitech was, in terms of Article 17.6,solely entitled to issue a notice of termination, if it resulted in a materialadverse effect on the project, continuing for more than nine months. Inthat event, APIIC was obligated to make the compensatory payment tothe developer. Compensatory payment liable to be paid in terms of theagreement is expressly defined, including for the purposes of Article14.3.1, to mean an amount which is the aggregate of (i) the total purchaseprice; and (ii) interest calculated at the SBI-PLR on the total purchaseprice “from the date on which the first payment of purchase pricein respect of compensated land is paid”. The applicable rate wasalso defined[12] to mean the Prime Lending Rate of the SBI, compoundedannually.

37. The failure of title in the erstwhile APIIC and the Governmentof Andhra Pradesh attained finality upon the decision of this Court inState of Andhra Pradesh Through Principal Secretary v. PratapKaran[13]. The basic postulate on which the entire contract was foundedstood nullified as a consequence of the failure of title. The agreementclearly 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 ofIndia, compounded-annually.”13 (2016) 2 SCC 82

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AThe failure of title entitles Unitech to claim a full refund together withcompensatory payment, as contractually defined. The claim does notraise a disputed question of fact requiring an evidentiary determination.Both the learned Single Judge and the Division Bench of the High Courthave elaborately considered the precedents of this Court and correctlyconcluded that Unitech is entitled to a refund. The finding in regard toBthe entitlement of Unitech to a refund is unexceptionable and has correctlynot been called into question at the stage of the hearing, despite thegrounds which were raised in the pleadings in the proceedings initiatedunder Article 136 of the Constitution by TSIIC and the State of Telangana.APIIC, as an instrumentality of the erstwhile Government of AndhraCPradesh, invited bids for a public project. Having invited privateentrepreneurs to submit bids on stipulated terms and conditions, it mustbe held down to make good its representations. The State and itsinstrumentalities are duty bound to act fairly under Article 14 of theConstitution. They cannot, even in the domain of contract, claim anexemption from the public law duty to act fairly.[14] The State and itsDinstrumentalities do not shed either their character or their obligation toact fairly in their dealings with private parties in the realm of contract.Investors who respond to the representations held out by the State whileinvesting in public projects are legitimately entitled to assert that therepresentations must be fulfilled and to enforce compliance with dutiesEwhich have been contractually assumed.

38. The Single Judge of the Andhra Pradesh High Court, in thecourse of the judgment dated 23 October 2018 computed as on 30September 2018, an amount of Rs.660.55 crores as due and payable.Interest on the basis of the SBI-PLR was compounded annually in termsFof the provisions of the Development Agreement. The Single Judge notedthat the respondents to the writ proceedings had not disputed (i) thedates of payment or (ii) interest at the rate of the SBI-PLR and nomaterial to contradict the computation was submitted. In appeal, theDivision Bench however directed that the claim for interest should be computed from 14 October 2015. This was the date on which UnitechGaddressed a communication seeking a refund of the ‘compensatorypayment’ 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 (SupremeCourt of India), para 33; ABL International Ltd. v. Export Credit Guarantee Corporationof India, (2004) 3 SCC 553, para 23; Central Bank of India v. Devi Ispat Ltd., (2010) 11HSCC 186, para 28

absence of title to the land in the Government of Andhra Pradesh. TheDivision Bench has proceeded on the rationale that

(i) Unitech was placed on notice that the award of the contractwas 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 isentitled to a refund of moneys from the date of initial payment. Theentitlement of Unitech to a refund of the amounts paid is embodied inthe terms of the contract which envisage that a default on the part ofAPIIC in conveying the land or the existence of political force majeureevents would furnish a valid basis for the “compensatory payment”. Moreover, the date from which compensatory payment has to be madeis specifically provided : the Development Agreement provides that itwill be “from the date on which the first payment of project price” ismade. The Division Bench was in error in curtailing the right of Unitechto claim a refund with effect from the dates on which the respectivepayments were made. Obviously, Unitech had entered into the projectsince it wished to pursue it. Unitech cannot be penalized for wanting tocontinue with the agreement, as APIIC navigated disputes over its claimto the land. While Unitech was put to notice of the existence of a litigation,the Development Agreement which stipulated an encumbrance-freehandover also specified that its covenants would supersede all otherunderstandings and that its terms would rank as the first, in order ofinterpretive priority. The judgment of the Division Bench suffers from aclear and patent error in restricting the liability of paying interest witheffect from 14 October 2015. The liability must date back, in terms ofthe Development Agreement, from the date on which the respectivepayments were made by Unitech. Interest at the contractual SBI-PLRrate has to be paid to Unitech. However, considering the facts andcircumstances of this case, the conscionability of Article 14.3.1 readwith Article 1(h) of the Development Agreement stipulating compensatorypayment at the SBI-PLR, compounded annually, becomes suspect.Clause 17 of the LoA expressly mentioned that the title of the land is lispendens and subject to the outcome of the proceedings pending beforethe Andhra Pradesh High Court. Unitech considered this circumstanceand consciously entered into the Development Agreement. It continued A

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Ato liaise with APIIC after an unfavorable judgement of the AndhraPradesh High Court and did not issue a termination notice, until the titlewas conclusively denied by a judgement of this Court. A ConstitutionBench of this Court, in the case of Central Bank of India v. Ravindra[15],when considering the question of penal interest rates, had observed:

B“39….. Pre-suit interest is referable to substantive law and canbe subdivided into two sub-heads: (i) where there is a stipulationfor the payment of interest at a fixed rate; and (ii) where there isno 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 tothree exceptions: (i) any provision of law applicable toCmoneylending transactions, or usury laws or any other debt lawgoverning the parties and having an overriding effect on anystipulation for payment of interest voluntarily entered into betweenthe parties; (ii) if the rate is penal, the court must award at suchrate as it deems reasonable; (iii) even if the rate is not penalDthe court may reduce it if the interest is excessive and thetransaction was substantially unfair.”

In a similar vein, in interpreting Section 74 of the Indian ContractAct, 1872, this Court has held that a contractually-stipulated interestErate, if found to be penal, excessive or in terrorem can be reduced to areasonable rate of compensation.[16] In upholding the reasoning of theKerala High Court in full, a two judge Bench of this Court in K PSubbarama Sastri v. KS Raghavan[17] held:

“5…”The question whether a particular stipulation in a contractualFagreement is in the nature of a penalty has to be determined bythe court against the background of various relevant factors, suchas the character of the transaction and its special nature, if any,the relative situation of the parties, the rights and obligationsaccruing from such a transaction under the general law and theGintention of the parties in incorporating in the contract the particularstipulation which is contended to be penal in nature. If on such acomprehensive consideration, the court finds that the real purpose 15 (2002) 1 SCC 367

16 Oriental Kuries Ltd. v. Lissa, (2019) 19 SCC 732; Bhubaneshwar DevelopmentAuthority v. Susanta Kumar Mishra, (2009) 4 SCC 684H17 (1987) 2 SCC 424

for which the stipulation was incorporated in the contract wasthat by reason of its burdensome or oppressive character it mayoperate in terrorem over the promiser so as to drive him to fulfilthe contract,, then the provision will be held to be one by way ofpenalty.”

Therefore, considering the position of Unitech-which knowinglyentered into the Development Agreement with full knowledge of thepending litigation and with an intention to continue with the project aftera delay of over seven years, up until a decision by this Court, we findthat the interest rate is payable to Unitech, without compounding.

E.3 Apportionment of the liabilities between theinstrumentalities of the state of Andhra Pradesh and Telangana

39. This leaves the court with the last facet which pertains to thedispute inter se between TSIIC and APIIC. The Single Judge has imposedthe liability to refund on TSIIC clarifying however, that it is “entitled torecover it from the State of Andhra Pradesh and the APIIC, if underlaw they are entitled to do so”. The Division Bench has not interferedwith the above direction.

40. Section 68 of the Re-organization Act is comprised in PartVII which enunciates “Provisions as to Certain Corporations”. Section68 of the Re-organization Act provides as follows:

“68. (1) The companies and corporations specified in the NinthSchedule constituted for the existing State of Andhra Pradeshshall, on and from the appointed day, continue to function in thoseareas in respect of which they were functioning immediately beforethat day, subject to the provision of this section.

(2) The assets, rights and liabilities of the companies andcorporations referred to in sub-section (1) shall be apportionedbetween the successor States in the manner provided in section53.”

The corporations which are listed out in the IX[th] Schedule includeAPIIC which appears at Serial No.17. Section 68(2) states that theassets, rights and liabilities of the companies and corporations referredto in sub-Section (1) shall be re-apportioned between the successor statesin the manner provided in Section 53. Section 53 is in the following terms:

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A“53. (1) The assets and liabilities relating to any commercial orindustrial 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 theState in which that area is included on the appointed day,irrespective of the location of its headquarters:B

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Provided that where the operation of such undertaking becomesinter-State by virtue of the provisions of Part II, the assets andliabilities of––

(a) the operational units of the undertaking shall be apportionedCbetween the two successor States on location basis; and

(b) the headquarters of such undertaking shall be apportionedbetween the two successor States on the basis of populationratio.

(2) Upon apportionment of the assets and liabilities, such assetsDand liabilities shall be transferred in physical form on mutualagreement or by making payment or adjustment through anyother mode as may be agreed to by the successor States.”

41. Section 65[18] allows for the successor states of Telangana andAndhra Pradesh to agree on the manner in which the benefit or burdenEof any particular asset or liability can be apportioned. Section 66[19]empowers the Central Government on a reference made, within threeyears 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 thebenefit or burden of any particular asset or liability should be apportioned betweenFthem 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 orliability shall be apportioned in the manner agreed upon.”

19 “66. Where, by virtue of any of the provisions of this Part, either of the successorStates of Andhra Pradesh and Telangana becomes entitled to any property or obtainsany benefits or becomes subject to any liability, and the Central Government is ofopinion, on a reference made within a period of three years from the appointed day byGeither of the States, that it is just and equitable that such property or those benefitsshould be transferred to, or shared with, the other successor State, or that a contributiontowards that liability should be made by the other successor State, the said property orbenefits shall be allocated in such manner between the two States, or the other Stateshall make to the State subject to the liability such contribution in respect thereof, asthe Central Government may, after consultation with the two State Governments, byorder, determine.”H

an adjustment or allocation of the liability. Finally, to complete the narrationof the statutory scheme, Section 71 is in the following terms:

“71. Notwithstanding anything in this Part, the Central Governmentmay, for each of the companies specified in the Ninth Schedule tothis Act, issue directions- (a) Regarding the division of the interests and shares of the existingState of Andhra Pradesh in the Company between the successorstates; (b) Requiring the reconstitution of the Board of Directors of theCompany so as to give adequate representations is the successorStates.”

Section 71(a) speaks of the interests and shares of the existingState of Andhra Pradesh in the companies specified in the IX[th ]Schedulebetween the successor States. APIIC has brought on record thecertificate issued by the Managing Directors of TSIIC and APIICrecording the auditing of assets and liabilities as on 1 June 2014. Thecertificate is in the following terms:

“CERTIFICATE

“This is to certify that Andhra Pradesh Industrial InfrastructureCorporation Limited (APIIC LTD.,), Hyderabad have got its Booksof Accounts audited upto 1[st] June, 2014 by M/s Jawahar andAssociates, Hyderabad (Statutory Auditors) and accordingly a)All the Assets and Liabilities as appearing in the Balance Sheetas on 01.06.2014 have been brought on record and have beenaudited and included in the Demerger Scheme and DemergerBalance Sheet and b) the instructions of the Special ChiefSecretary (Industries and Commerce), Government of AndhraPradesh vide Circular No.3685/INF (SRC)/2014 dated 29.05.2014have been followed.

All the Assets and Liabilities were duly apportioned betweenAndhra Pradesh and Telangana States as per the provisions ofAndhra Pradesh Reorganisation Act, 2014.

Further to certify that all the suggestions and advices given byExpert Committee with respect to Demerger of Assets andLiabilities have been complied with in formulating the finalDemerger Scheme.

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42. The Scheme for apportionment/demerger has also beenproduced by APIIC in the course of the pleadings. Para 1 of Section 1Part II of the Scheme is in the following terms:

“1. Upon the coming into effect of the Scheme and with effectfrom the Appointed Date and subject to this Scheme, all theoperational Units of the Demerged Undertaking (including all theestate, assets, rights, title, interest and authorities includingaccretions and appurtenances of the Demerged Undertakingnamely Cyberabad Zone, Jeedimetla Zone, Karimnagar Zone,Patancheru Zone, Shamshabad and Moula Ali Zone, WarangalZone vest with the Transferee Company and shall, subject to theprovisions of the scheme in relation to the mode of vesting andpursuant to Section 53 of the Act and without any further act ordeed, or be deemed to have been apportioned and transferred toand vested in the Transferee Company as a going concern so asto become as and from the Appointed Date, the estate, assets,rights, title, interest and authorities of the Transferee Company asdetailed in the Schedule-I”

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Clause 3 provides thus:

“3(a) In respect of such of the assets and liabilities located/held atthe Headquarters of the Transferor Company shall be apportionedFbetween the Transferee Company and Transferor Company onthe basis of population ratio.

(b) In respect of the investments in public, private or commercialundertaking companies held by APIIC before the appointed dateare apportioned on location basis where the projects are locatedin a specific region.

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(c) In respect of investments in projects having multiple units fallingwithin the territories of State of Andhra Pradesh and Telanganashall be apportioned on the basis of population.”

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Schedule I provides for the Zonal offices pertaining to Telanganaregion. Serial no.3 refers to the Shamshabad and Mauli Ali region whichincludes the area covered by the project site. The land which is comprisedin the project site falls exclusively within the Telangana region as specifiedin the demerger scheme.

43. We clarify that following the course of action which has beenadopted by the learned Single Judge, we are not adjudicating finally uponthe rights inter se between TSIIC and APIIC. TSIIC shall refund theamounts due and payable to Unitech in terms of the present judgment.TSIIC would be at liberty to pursue its rights and remedies in accordancewith law over its claim for apportionment on which, we express no finalopinion.

F. Summation

44. TSIIC and the State of Telangana have brought to our noticethat the Development Agreement, on the basis of which Unitech hassought to avail its contractual remedy has not been registered or assessedto stamp duty. Under Article 3.1 of the Development Agreement, theobligation of paying registration fees and stamp duty is on Unitech. It iswell-settled law that the Stamp Act is a fiscal measure enacted to securethe revenue for the State, and not to arm the opponent with a weapon oftechnicality.[20] Unitech’s claim to compensatory payment cannot bedefeated on the sole ground of the payment of stamp duty. TheDevelopment Agreement shall have to be impounded and be presentedto the Chief Controlling Revenue Authority in the State of Telangana forassessment of stamp duty and to the competent authority for registration.The assessment shall be completed within thirty days. The appropriatestamp duty and registration charges liable to be paid in terms of thedetermination shall be paid by TSIIC and be deducted from the refunddue and payable to Unitech under the terms of this order.

45. For the above reasons, the appeals shall stand disposed of inthe following terms:

(i) The Development Agreement stands impounded and shallbe forwarded by TSIIC within two weeks to the competentauthority for registration and for assessment of stamp duty.The assessment to stamp duty and formalities for registrationshall be completed within one month. The amount payable20 Hindustan Steel Limited v. Dilip Construction Company, (1969) 1 SCC 597 para 7

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Atowards stamp duty, penalty (if any) and registration chargesshall be paid initially by TSIIC into the account of thecompetent authority within two weeks of the determinationand shall be adjusted against the refund payable by TSIICto Unitech; B(ii)The appeal filed by Unitech, arising out of SLP(C) No 9019of 2019 is allowed in part by setting aside the direction ofthe Division Bench of the High Court which confined theliability to pay interest only with effect from 14 October2015; C(iii)Unitech shall be entitled to a refund of an amount of Rs.165crores together with interest at the SBI-PLR commencingfrom the respective dates of payment, computed inaccordance with the provisions of the DevelopmentAgreement (except for compounding); D(iv)The amount which has been deposited in the Registry ofthis Court in pursuance of the interim order shall be disbursedto Unitech together with accrued interest. The balance dueand payable under the terms of this judgment shall berefunded by TSIIC to Unitech within two months from thereceipt of a certified copy of this judgment; andE

(v) In terms of the directions of the Single Judge of the HighCourt, TSIIC will be at liberty to pursue its remedies forapportionment in relation to APIIC in accordance with law.No opinion is expressed on the merits or tenability of theclaim for apportionment asserted by TSIIC.F46. The appeals arising out of the Special Leave Petitions filed bythe State of Telangana and TSIIC shall also stand disposed of in termsof the present judgment. There shall be no order as to costs.

47. Pending application(s), if any, shall stand disposed of.

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Devika Gujral

Appeals disposed of.

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