Supreme Court held that the presence of an arbitration clause does not oust the jurisdiction under Article 226 in all cases.

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 Civil Appeal No. 317 of 2021 Arising out of SLP (C) No. 9019 of 2019, Decided on February 17, 2021

JUDGES: D. Y. Chandrachud & M. R. Shah, JJ.

FACTS:  The Appellant No. 1 entered into a Development Agreement dated 19-08-2008 (hereinafter referred as “Agreement”) with the Andhra Pradesh Industrial Infrastructure Corporation Ltd. (hereinafter referred as “APIIC”) to develop, design and construct an Integrated Township Project / Multi Services Aerospace Park (hereinafter referred as “Project”) in a certain land. For this Project, Appellant No. 1 paid around Rs 165 Crores, which comprises of Rs 140 Crores towards the Cost of Land, Rs 20 Crores towards Earnest Money Deposit (hereinafter referred as “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, Appellant No. 1 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 (hereinafter referred as “Reorganization Act”). As a result, Appellant No. 1 requested both APIIC and the newly-formed Telangana State Industrial Infrastructure Corporation Ltd (hereinafter referred as “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, Appellant No. 1 filed a Writ Petition before the Supreme Court, which directed Appellant No. 1 to approach the High Court. Hence, Appellant No. 1 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 (hereinafter referred as “SBI- PLR”) from September 2007, i.e. the date from when Appellant No. 1 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 Appellant No. 1. 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 Appellant No. 1 had first sought for refund of all amounts, instead of September 2007, when Appellant No. 1 had started making payments, as Appellant No. 1 was then aware of the pending litigation.

Aggrieved by the Order of the Division Bench of the High Court, Appellant No. 1 filed Special Leave Petitions before the Supreme Court.


Whether the writ under Article 226 is maintainable or is excluded altogether in a contractual matter?


The Supreme Court allowing the appeal held that the jurisdiction under Article 226 was rightly invoked by the Single Judge and the Division Bench of the Andhra Pradesh High Court when the foundational representation of the contract has failed. The Court said that the TSIIC, a state instrumentality, has not just breached its contractual obligation, but hoarded the refund of the principal and interest on the consideration that was paid by Appellant No. 1 over a decade ago. The Court held that the State and its instrumentalities are not exempted from the duty to act fairly merely because in their business dealings they have entered into the realm of contract and similarly, the presence of an arbitration clause does oust the jurisdiction under Article 226 in all cases.


Whether the State authority was under contractual obligation to pay compensatory payment?

[Fact: the basic postulate underlying the contract between the parties was the availability of the land which comprised the project site which was subject to the outcome of the pending appeal


The Supreme Court answering in affirmative held that the State Authority was under contractual obligation to pay the compensatory payment to the Appellant No. 1.


Whether the APIIC or TSIIC is liable to pay compensatory payment to the Appellant No. 1?


The Court held that TSIIC shall refund the amounts due and payable to Appellant no. 1 in terms of the present judgment with liberty to pursue its rights and remedies in accordance with law over its claim for apportionment on which the Court expressed no final opinion.


Whether non-registration or payment of stamp duty of Development Agreement would bar the Appellant from claiming contractual remedy under the said Agreement?


The Supreme Court answering the above question in negative held that appropriate stamp duty and registration charges liable to be paid in terms of the determination shall be paid by TSIIC and be deducted from the refund due and payable to Appellant No. 1. Furthermore, the Court observed that the Stamp Act is a fiscal measure enacted to secure the revenue for the State, and not to arm the opponent with a weapon of technicality and hence, Appellant No. 1’s claim to compensatory payment cannot be defeated on the sole ground of the payment of stamp duty.

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