SUPREME COURT DIRECTS TELANGANA STATE GOVERNMENT TO REFUND PROJECT COSTS TO UNITECH LIMITED

The #SupremeCourt has recently passed a Judgment dated 17-02-2021 in Unitech Limited and Others vs Telangana State Industrial Infrastructure, whereby, the Apex Court decided upon issues of #refund of #project related #costs from the #StateGovernment of Telangana and Andhra Pradesh.

In this case, the Appellant No. 1, Unitech Limited (#Unitech), had entered into a Development Agreement dated 19-08-2008 (Agreement) with the Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC) to develop, design and construct an Integrated Township Project / Multi Services Aerospace Park (Project) in a 350 Acres of Land in Nadergul Village, Saroornagar Mandal, Ranga Reddy District (Land). For this Project, Unitech paid around Rs 165 Crores, which comprises of Rs 140 Crores towards the Cost of Land, Rs 20 Crores towards Earnest Money Deposit (EMD) and Rs 5 Crores towards Project Development Expenses.

However, allotment of Land was subject to the outcome of a litigation pending before the then High Court of Andhra Pradesh in the matter of Pratap Karan v Govt. of Andhra Pradesh. Hence, Unitech deferred commencement of work on the Land, until APIIC handed over possession of the Land encumbrance-free. Thereafter, the High Court of Andhra Pradesh passed a Judgment dated 19-12-2011 in the said matter and held that the Government of Andhra Pradesh did not have title to the Land.

Meanwhile, the State of Andhra Pradesh was re-organized into the successor States of Andhra Pradesh and Telangana with effect from 02-06-2014 under the provisions of the Andhra Pradesh Reorganization Act, 2014 (the #Reorganization Act). As a result, Unitech requested both APIIC and the newly-formed Telangana State Industrial Infrastructure Corporation Ltd (TSIIC), a successor of APIIC, for refund of all amounts received in relation to the Land together with interest and damages for the loss suffered by them, including the cost of borrowing capital from banks, expenses for planning and designing, opportunity costs and other costs for development.

But as APIIC and TSIIC did not refund the amounts, Unitech filed a Writ Petition before the Supreme Court, which directed Unitech to approach the High Court. Hence, Unitech filed a Writ Petition before the High Court of Telangana seeking a refund of Rs 165 Crores along with interest at the SBI Prime Lending Rate (SBI- PLR) from September 2007, i.e. the date from when Unitech started making payments. The said Petition was allowed by the Hon’ble High Court, vide Judgment dated 23-10-2018.

Aggrieved, TSIIC and State of Telangana filed an Appeal before the Division Bench of the High Court. The Division Bench passed a Judgment dated 01-04-2019 and upheld the Order of the Single Bench regarding liability of TSIIC to refund Rs. 165 Crores to Unitech. However, the Division Bench modified the Order to the extent that interest would be paid at SBI-PLR rate from 14-10-2015, i.e. the date on which Unitech had first sought for refund of all amounts, instead of September 2007, when Unitech had started making payments, as Unitech was then aware of the pending litigation.

Aggrieved by the Order of the Division Bench of the High Court, Unitech, TSIIC and State of Telangana filed Special Leave Petitions before the Supreme Court.

The Apex Court made the following observations in this case regarding maintainability of Writ Petition and liability of the State Government to refund the amounts to Unitech:

1- That although there is an Arbitration Clause stipulated in the Agreement, a Writ Petition under Article 226 of the Constitution of India is maintainable for asserting rights arising out of contractual obligations against the State, or its instrumentalities. This is because if the state instrumentality violates its constitutional mandate under Article 14 to act fairly and reasonably, relief under the plenary powers of the Article 226 of the Constitution would lie.

2- That APIIC and TSIIC, being State Instrumentalities, are duty bound to act fairly under Article 14. They cannot seek exemption from the public law duty to act fairly in their business dealings with private parties in the domain of contracts.

3- Further, as APIIC and State Government of Andhra Pradesh failed to obtain title to the Project Land, hence, the entire basis on which the Agreement was founded stood nullified. Without having title to the Land, they could not have conveyed full title to the Developer, Unitech.

4- Hence, the failure of title entitles Unitech to claim a full refund of the amounts along with compensatory payment, as stipulated in the Agreement.

5- Further, as per the terms of the Agreement, the existence of political force majeure event (i.e. reorganization of the States of AP And Telangana) and the default on the part of APIIC/TSIIC (i.e. to convey the Land encumbrance-free), would entitle Unitech to claim compensatory payment, “from the date on which the first payment of project price” is made.

Hence, the Supreme Court directed the TSIIC/APIIC to pay the Appellant, Unitech Rs.165 Crores along with interest at SBI-PLR rates commencing from the respective dates of payment.

Further, the Apex Court held that, as per the terms of the Reorganization Act, TSIIC may pursue legal remedies in relation to apportionment or adjustment of the refunded amounts with APIIC and State of Andhra Pradesh.

Harini Daliparthy

Senior Legal Associate

The Indian Lawyer