Unitech Ltd. Vs. Telangana State Industrial Infrastructure Corporation (TSIIC) [February 17, 2021]

CITATION	2021 SCC OnLine SC 99
DATE OF JUDGEMENT	February 7, 2021
COURT	Supreme Court of India
APPELLANT	Unitech Limited and Others
RESPONDENT	Telangana State Industrial Infrastructure Corporation (TSIIC) and Others
BENCH	Dr. D.Y. Chandrachud and M.R. Shah, J.J.

INTRODUCTION

The dispute in “Unitech Ltd. Vs. Telangana State Industrial Infrastructure Corporation (TSIIC)”, which was decided on February 17, 2021, concerns TSIIC, a state-owned organization in charge of Telangana’s infrastructure development, and Unitech Ltd., a real estate business. A deal was signed by Unitech Ltd. and TSIIC to create an integrated township project in Hyderabad. According to Unitech, TSIIC failed to give the required certifications and approvals, which caused delays and monetary losses. On the other hand, TSIIC charged Unitech with not following the project schedules and not finishing the assigned job.

The case is noteworthy because it highlights the difficulties associated with major infrastructure projects and the necessity of careful planning and fulfillment of contractual duties by all parties. It also emphasizes the judiciary’s function in settling these kinds of conflicts and guaranteeing accountability in public-private partnerships.

FACTS OF THE CASE

1. After receiving a 20 crore earnest money deposit, Unitech’s offer was accepted on November 28, 2007. As stipulated in the deal, it had to pay Rs 5 crores for project development costs and Rs 140 crores for project land. Regarding the land, a lawsuit was ongoing. The land allotment given by APIIC in its Letter of Award (“LoA”) was contingent to the resolution of the ongoing case. The LoA said as follows:

The Hon’ble High Court of Andhra Pradesh’s decision in Appeal Suit No. 274/2007 in (OS No. 155/05), WP Nos. 19670/07, 20667/07, and 22043/07, will determine whether or not the aforementioned land is allotted.”

2. A Development Agreement was signed on August 19, 2008, by APIIC, Unitech, and Nacre Gardens Hyderabad Limited, a special purpose corporation established to carry out the project that was previously known as Unitech Hyderabad Township Limited.
3. Unitech received a notice to show cause from APIIC on April 29, 2011, in order to start development on the project land. On May 11, 2011, Unitech asked APIIC to notify them within seven days of the actions being taken to transfer the land in accordance with the requirements of Development Agreement Article 13.3(b), which required an encumbrance-free transfer. In Unitech’s letter dated May 14, 2011, the response to APIIC’s show-cause notice of April 29, 2011, was reiterated, noting that before work could start, APIIC would need to prove its ownership of the land and remove any encumbrances. 8 On May 21, 2011, APIIC received notification that there had been a “political force majeure event” as defined by the Development Agreement. In a case known as “Pratap Karan v. Govt. of Andhra Pradesh1,” the Andhra Pradesh High Court ruled on December 19, 2011, that the state government lacked title to the project land. Following the ruling, Unitech asked APIIC to elucidate its stance and work with them to jointly investigate potential resolutions to the project site’s title dispute in a correspondence dated March 27, 2012. 9. On July 12, 2012, Unitech wrote to APIIC stating the following:

‘The Developer is experiencing severe hardship and financial losses as a result of the Project’s delayed start due to causes solely attributable to APIIC. It is commendable that interest is being given to financial institutions on the total sum paid to APIIC for the 1 Appeal Suit No. 274 of 2007 (Andhra Pradesh High Court). ‘

4. On April 8, 2013, Unitech once more requested that APIIC step up to complete the sale deed, turn over the project site, and make sure that all encumbrances on the project land are removed in accordance with the Development Agreement so that APIIC can fulfill its duties as soon as possible.
   We now order APIIC to be included as a party in each and every Special Leave Petition. The modification will be implemented one week from now.
   
5. The money will be deposited, and the Registry of this Court will invest it in a fixed deposit of a nationalized bank. The newly formed Unitech Limited Board of Directors would be free to request the removal of the aforementioned sum. 13 PART C Notice in the Special Leave Petitions filed on July 22, 2019, by the State of Telangana, and April 29, 2019, by TSIIC, has been released. 19 Due to shared facts and a single transaction, the appeals from the three processes under Article 136 of the Constitution have been heard concurrently.
   Only when APIIC receives rs. 140 crores from the successful bidder/SPV, in accordance with the previously agreed-upon installments, will the Sale Deed be signed in favor of the Special Purpose Vehicle (SPV).
   

ISSUES RAISED

1. Whether there was a contract violation by TSIIC for its purported inability to give certifications and approvals?
2. Establishing who is liable for project delays and monetary damages?
3. Evaluating each party’s contribution to the integrated township project’s completion?
   

CONTENTIONS OF THE APPELLANT

1. According to Unitech Ltd., TSIIC breached the conditions of their contract. The appellant contended that Unitech suffered financial losses and operational challenges as a result of TSIIC’s failure to carry out its responsibilities under the agreement.
2. The appellant contended that TSIIC’s termination of the contract was arbitrarily and illegally done. According to Unitech Ltd., there was no justification for the termination, and the decision was made without following the correct procedures or providing enough notice.
3. Unitech Ltd. requested payment to offset any monetary losses brought on by TSIIC’s purported violation of contract. They contended that the abrupt contract termination caused major financial losses and interfered with their ability to conduct business.
4. The appellant asked the court to mandate that TSIIC either reestablish the contract or offer appropriate compensation for the losses resulting from its termination.
   

CONTENTIONS OF THE RESPONDENT

1. According to TSIIC, Unitech Ltd. had not complied with its end of the bargain in terms of their agreement. This includes following predetermined deadlines and executing the project later than planned.
   
2. According to TSIIC, Unitech Ltd. had neglected to fulfill its financial obligations, including making the project-related payments and investments. The project’s overall development and completion were harmed by this setback.
   
3. The respondent contended that Unitech Ltd.’s material delays and contract violations warranted the contract’s termination. According to TSIIC, Unitech Ltd. was given several chances and reminders to address the violations, but the company disregarded them.
   
4. In order to recover its losses, TSIIC filed a claim against Unitech Ltd. for non-performance and contract violations. This includes demands for various related expenses as well as liquidated damages as outlined in the contract.
   
5. The respondent said that all actions, including contract termination, complied with applicable laws and agreements. They contended that in order to safeguard their interests and guarantee the project’s early completion, they had acted lawfully.

JUDGEMENT

The Supreme Court of India addressed important questions about the maintainability of writ petitions under Article 226 of the Constitution in the context of contractual disputes involving state entities in the case of “Unitech Ltd. Vs. Telangana State Industrial Infrastructure Corporation (TSIIC),” decided on February 17, 2021.

In order to establish a project on property in the Ranga Reddy District, Unitech Ltd. and the Andhra Pradesh Industrial Infrastructure Corporation (APIIC) entered into a development agreement. The project was unable to advance due to ongoing litigation over the land title and subsequent state restructuring. As a result, Unitech has requested a refund of the Rs. 165 crores that it had paid to TSIIC and APIIC. 

The Supreme Court affirmed that an arbitration clause in a contract does not automatically waive the High Courts’ Article 226 jurisdiction. The Court stressed that, as required by Article 14 of the Constitution, state instrumentalities must behave justly and decently in all of their interactions, including contractual ones. Therefore, even with the arbitration clause in place, a writ petition is viable if a state institution violates these standards.

The Court determined that TSIIC had broken its contractual duties and had behaved arbitrarily in keeping the money, and it ordered TSIIC to return Rs. 165 crores to Unitech together with interest.

ANALYSIS

The case encounters a dispute involving a land development agreement in which Unitech Ltd. claimed TSIIC had failed to fulfill some duties, particularly as to obtaining the required approvals and permissions. The provisions of the agreement between TSIIC and Unitech Ltd. were scrutinized by the court. It was discovered that before TSIIC could carry out its responsibilities, Unitech Ltd. had to satisfy certain preconditions stated in the agreement. The court pointed out that Unitech Ltd. had not complied with the previous requirements. The court examined the evidence and concluded that Unitech Ltd. had not obtained the necessary clearances and permissions in time. When the matter was first brought before arbitration, Unitech Ltd. requested temporary injunctions to prevent TSIIC from citing bank guarantees.After looking into the responsibilities of both parties, the arbitration panel concluded that Unitech Ltd. had broken some precedent-setting requirements.

Strict adherence to contractual conditions is crucial, as the court upheld the arbitration tribunal’s findings. It was brought to light that setting precedents is essential to guaranteeing that each party is prepared to carry out their responsibilities. Because Unitech Ltd. had not complied with the contract’s fundamental requirements, the court reasoned that TSIIC was warranted in taking its action.

The ruling reaffirmed the rule that precedent conditions in contracts are legally obligatory and necessary to ensure a successful transaction.In order to prevent disagreements, the court emphasized the significance of precise contractual provisions and their observance. The ruling emphasizes how important it is for parties to carefully follow the conditions of their agreements. It serves as a cautionary tale to businesses about how crucial it is to follow precedent in order to prevent legal issues.

The case illustrates the application of interim measures to address pressing issues and the function of arbitration in settling commercial disputes. It demonstrates that when arbitration panel decisions are supported by a careful analysis of the evidence, courts frequently sustain those decisions.

CONCLUSION

Significant problems pertaining to contractual disputes involving state corporations were addressed by the Supreme Court of India in the February 17, 2021, ruling in the matter of “Unitech Ltd. Vs. Telangana State Industrial Infrastructure Corporation (TSIIC)”. The main point of contention was a land development agreement in which Unitech Ltd. asserted that TSIIC had not complied with its commitments, especially with regard to acquiring the required rights and clearances.

The Court determined that by keeping the Rs. 165 crores that Unitech had paid, TSIIC had violated its contractual obligations and acted arbitrarily. As a result, TSIIC was mandated to return the money plus interest. The decision emphasized that when state institutions behave arbitrarily or unjustly, the existence of an arbitration clause does not exclude the High Courts’ authority under Article 226.

The ruling underscored the significance of complying with contractual terms and the judiciary’s function in guaranteeing responsibility in public-private collaborations. It serves as a reminder that in order to prevent disagreements and guarantee the effective completion of projects, contract requirements must be followed exactly and strictly.

REFERENCES

1. SCC Online
2. https://indiankanoon.org/doc/176176934/
3. https://theindianlawyer.in/supreme-court-directs-telangana-state-government-to-refund-project-costs-to-unitech-limited/

This Article is written by Titiksha Singh student of Lloyd Law College, Greater Noida ; Intern at Legal Vidhiya.

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