Unitech Limited & Ors. vs. Telangana State Industrial Infrastructure Corporation (TSIIC) & Ors., Civil Appeal No. 317 of 2021 : Supreme Court of India (decided on 17 February 2021)
A glimpse of the disputes:
In September 2007, the Andhra Pradesh Industrial Infrastructure Corporation Limited (“APIIC”) floated a bid for developing and integrated township project. Unitech’s bid was accepted and it deposited an earnest money of Rs. 20 Crores. It had to pay the cost of the project land and expenses to the tune of Rs. 145 Crores. A litigation in regard to the land was pending. So, in the Letter of Award (“LoA”), APIIC made the allotment of the land subject to the outcome of the pending litigation.
In terms of the LoA, Unitech paid a total amount of Rs 165 crores. On 19 August 2008, a Development Agreement was entered into between APIIC, Unitech and the Special Purpose Vehicle. Article 17 of the Development Agreement stipulated force majeure events which included ‘political force majeure events’. It also stated that in the event of a political force majeure event continuously impacting upon the project as a material adverse effect for over nine months, the developer would be entitled to issue a notice of termination. Upon such termination, APIIC was required to pay the ‘compensatory payment’ to the developer. The Development Agreement contained arbitration clause.
In the pending litigation, the High Court of Andhra Pradesh in December 2011 concluded that the Government of Andhra Pradesh did not have any title to the project land, which was the subject matter of the Development Agreement. The Single Judge judgement was upheld by the Division Bench. Unitech requested APIIC to refund all the amounts along with interest and damages of total Rs. 457 Crores. As a consequence, the disputes ensued.
The High Court (Single Judge and DB) decisions:
Unitech invoked Writ Jurisdiction under Article 226 of the Constitution before the High Court of Telangana seeking a refund of Rs. 165 Crores along with interest as per the SBI Prime Lending Rate (“SBI-PLR”) from the date of payments. The High Court held that retention of the amounts in question constitutes unjust enrichment and violates Article 14 and 300-A of the Constitution. Unitech was declared to be entitled to restitution of the said principal amount along with the interest. Moreover, as SBI-PLR interest was calculated on the basis of compound interest annually starting from the date of payment of the 1st instalment, i.e. date of payment of the earnest money. The total amount of Rs. 660.55 Crores was computed.
In Appeal, the Division Bench held that Unitech was entitled to the consideration. However, the calculation of interest was modified, requiring the payment of interest at the SBI-PLR from 14 October 2015 instead of 17 September 2007.
Being aggrieved by the said Order of the High Court of Telangana, three different Special Leave Petitions were filed before the Supreme Court by Unitech, TSIIC (a successor of APIIC) and State of Telangana, which were clubbed together since they arise out of common facts and transactions.
One of the primary issues was whether the High Court has jurisdiction under Article 226 of the Constitution in a purely contractual dispute governed by an Arbitration clause under the Development Agreement?
The Supreme Court held that the recourse of Article 226 is not excluded altogether in a contractual dispute. A public law remedy is available for enforcing legal rights subject to well-settled parameters.The Court relied on the case of ABL International Ltd. v. Export Credit Guarantee Corporation of India (2004) 3 SCC 553, where a petition under Article 226 was held maintainable to assert contractual rights against the State or its instrumentalities falling within the definition of Article 12 of the Constitution. Further, reliance was placed on State of UP v. Sudhir Kumar, 2020 SCC Online SC 847and Popatra Vynkatrao Patil v. State of Maharashtra, Civil Appeal No. 1600 of 2000, wherein the principles of laid down by ABL International Ltd. v. Export Credit Guarantee Corporation of India, (2004) 3 SCC 553 were upheld.
The Court observed that; “The decision in ABL International, cautions that the plenary power under Article 226 must be used with circumspection when other remedies have been provided by the contract. But as a statement of principle, the jurisdiction under Article 226 is not excluded in contractual matters.”The Court observed that the State and its instrumentalities are not exempted from their duty to act rationally and fairly whenever they enter into a contract. The Courts are entitled to enquire whether the action of the State is acting in violation of Article 14 of the Constitution.
Other important issue:
The Supreme Court held that the DB erred in determining the actual date from which the interest will be payable, and upheld the decision of the Single Judge. However, it concluded that that the interest rate was payable to Unitech without compounding. This was held considering the position of Unitech which knowingly entered into the Development Agreement with full knowledge of the pending litigation and with an intention to continue with the project after a delay of over seven years.
It is pertinent that State of Telangana and TSIIC did not question the entitlement of Unitech to seek a refund or the availability of the land for carrying out the project being placed in issue. Further, the State did not agitate the ground that a remedy for the recovery of moneys arising out a contractual matter cannot be availed of under Article 226. This is relevant because, in determining as to whether the jurisdiction should be exercised in a contractual dispute, the Court must, undoubtedly eschew disputed questions of fact which would depend upon an evidentiary determination requiring a trial. At the same time, the writ jurisdiction cannot be ousted only on the basis that the dispute pertains to the contractual arena.
In these premises, the Supreme Court held that the presence of an arbitration clause does not oust the jurisdiction under Article 226 in all cases though, it still needs to be decided from case to case as to whether recourse to a public law remedy can justifiably be invoked.
The judgement is being criticized because of its potential of being used even by the private parties to straight away invoke writ jurisdiction and bypass the arbitration clause. While such instances are likely, the High Courts must act with its prudence to appropriately apply the ratio laid down by the Apex Court and not merely entertain each and every Writ Petition despite the arbitration clause contained in the subject agreement.