This article is written by Niharika Agrawal, from IFIM Law School. This detailed article is based on the recent judgment of the case Unitech v. TSIIC with regards to the government contract and constitutional remedies. 

Introduction

Fundamental rights play a very significant role in every individual’s life. Similarly, it is known that where it is right, there is a remedy. Whenever an individual thinks that his/her fundamental rights have been violated, they approach the court for the constitutional remedy called writs. But it is not always necessary that every violation or infringement is a fundamental right. In the case of contractual obligations not every breach of contract is a violation of fundamental rights. It always differs from the facts and circumstances of each case. Hence the question of maintainability of writ jurisdiction in contractual matters varies from case to case.

The case of Unitech v. TSIIC (2021) explains in detail whether the writ petition is maintainable when there is a presence of contractual obligation in the case. Hence this article deals with whether the presence of an arbitration clause in the agreement would put an absolute bar on the constitutional remedy to invoke writ petition available under Article 226 of the  Constitution of India under  when one such party to the contract is the state or its instrumentalities. 

Facts of the case 

In the instant case, three appeals were filed. It was constituted by 1. UNITECH Ltd (Unitech),  2. Telangana State Industrial Corporation (TSIIC), 3. The state of Telangana. In November 2007, the Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC) has contracted with Unitech for the development and construction of a township in Ranga Reddy district. The estimated cost of the entire project was Rs. 165 crore which includes the cost of land, earnest money deposit, and development project expense. This sum of Rs. 165 cr. was already paid by Unitech. The land over which the project was supposed to be carried out was under pending litigation. Unitech was well aware of the pending litigation. With the help of a Letter of Award (LoA), APIIC allotted the land subject to the outcome of the pending litigation in the hon’ble Andhra Pradesh High Court. 

In 2011, APIIC issued a notice to Unitech for the commencement of the work, to which Unitech first asked to hand over the title of the land as per the development agreement. At the end of the year, the High Court of Andhra Pradesh confirmed that the Government of Andhra Pradesh does not have the title of the land which was mandated by the development agreement. The development agreement also contained the arbitration clause. This position of land was also confirmed by the apex court. 

Later in the year 2014, the State of Andhra Pradesh was reorganized into the states of Andhra Pradesh and Telangana, due to this the control of the project land was shifted from APIIC to TSIIC. Further Unitech in 2015 sought the total refund of the entire amount along with the interest of Rs. 457 cr that is principal as well as interest amount from APIIC and TSIIC. Even after subsequent reminders and issuance of a notice, Unitech was not refunded. Further, he got the liberty to approach the High Court under Article 226 of the Constitution even after having an arbitration clause in the development agreement.

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Unitech filed a writ petition before the High Court of Telangana seeking the refund of INR 165 cr together with the interest from the date of payment made. This petition was allowed by the single judge bench. 

Furthermore, the appeal was filed in the division bench by the State of Telangana and TSIIC against the order of the single-judge bench of the High Court of Telangana. The division bench supported the order of the above-mentioned regarding the liability of TSIIC to refund the amount of Rs. 165 cr. but modified the interest which was supposed to be from Oct 2007 (beginning dates of payment)  rather than Sept 2015  (Unitech first sought refund) at SBI-PLR (SBI Prime Lending Rate). In the present appeal it was also contended by the TSIIC that this writ petition is not maintainable as there was a “pre-contractual matter” and the presence arbitration clause under the development agreement. 

These aggrieved parties after the order of the High Court of Telangana approached the Supreme Court with the Special Leave Petition under Article 136 of the Constitution filed by Unitech, TSIIC, and the state of Andhra Pradesh. 

Writ jurisdiction and governmental contracts

Writ jurisdiction is not only a constitutional remedy but also a fundamental right provided under the Constitution of India for the purpose of safeguarding other fundamental rights under the Constitution whenever infringed or violated. It is available under Article 226 in the High Court and Article 32 in the Supreme Court of the Constitution. It is issued by the higher courts to provide directions or orders to the lower court to work in a specific manner and for avoiding the misuse of authority. 

Government contracts are contracts where one party is itself the Government either Central or State. These parties usually come under the contract for construction, IT projects, management, etc. Art 298 of the Constitution has provided power to the Government to enter into the contract for the purpose of trade and business. 

The question of maintainability of the writ petition in the case of contractual matters against the state is always debatable. According to the law, whenever there is a violation of a fundamental right, a writ petition can be issued. It is not important that wherever there is a breach of contract by the state, there is an infringement of fundamental rights. Sometimes it can merely be the breach of contract or the case of non-payments etc. 

Factors regulating the maintainability of writ jurisdiction in contractual matters

There are various cases that can be referred to under the maintainability of the writ petition in contractual matters.

  1. There is no bar for entertaining writ jurisdiction on State’s contractual matters however it completely depends upon the discretion of the court under each circumstance of the case. 
  2. In the case where the contract is statutory in nature between the aggrieved person and the state and there is a breach of statutory rights and obligations, such breach of statutory contract can be entertained by the writ petition. 
  3. Where there is a simple breach of a contract and not a statutory breach, where the rights and liabilities are regulated by the terms of the contract, such contracts are not governed by the provision of the writ petition, as it is the private right and not the public interest. 
  4. The two very important conditions for maintainability of writ jurisdiction are first the person his identity against whom the writ is issued and second the nature of the contract i.e. public duty or made for the interest of the public. This criterion cannot be ignored. 

Issues raised

  1. Whether the writ petition allowed by the High Court under Article 226 of the Constitution in the presence of the Arbitration clause is maintainable?
  2. Liabilities of the respondents towards refund of an amount of Rs. 165 cr along with the interest from the date of the first installment is valid or not?

Findings of the court

The apex court in its judgment has observed and stated that the writ petition under Article 226 in the honorable HC is maintainable. According to the court of justice, Article 226 is included altogether in a pre-contractual matter. It has referred to the precedent of the case ABL International Ltd. v. Export credit Guarantee Corporation of India (2003) in which it was held that Art 226 is maintainable to assert the contractual rights against the State or its instrumentalities which comes under the definition of the State under Article 12 of the Constitution. This principle was followed in various other cases as well. 

Further, the court observed that Article 226 is not only a public law but also acts as a constitutional remedy against any arbitrary or unfair action of the State or its instrumentality. It was also opined that investors always believe in the representations given by the State while investing in such public projects and therefore expect that such expectation through representation must be fulfilled and to adhere to the duties which have been contractually assumed. 

Does the presence of an arbitration clause within a contract between a State instrumentality and a private party bar the remedies under the writ jurisdiction of Article 226

The Supreme Court has very well explained that the presence of an arbitration clause within a contract between a State instrumentality and a private party cannot be absolutely exempted from benefitting the constitutional remedy available under Article 226 of the Constitution. The jurisdiction of the court under Article 226 of the Constitution is available whenever the act of the State or its instrumentalities is arbitrary, unjust, or violating Article 14 of the Constitution. This constitutional remedy is available for the safeguard against the arbitrary action of the state while misusing its authority. 

Further, it was opined by the court that the clause of arbitration in the contract cannot oust the jurisdiction under Article 226, but sometimes it may differ from case to case. 

Whether Unitech is entitled to refund of an amount of Rs 165 crores with interest

According to the judgment of the Hon’ble Apex Court, Unitech was entitled to get the refund amount of Rs. 165 cr along with interest at SBI-PLR (SBI Prime Lending Rate) from the beginning date of payment, as per the provisions of the development agreement without compounding, as Unitech even after knowing about the pending litigation, its intention was found to continue with the project after the delay of over seven years until the decision of the court. However, TSIIC has the liberty to get its remedy for adjustment in relation to APIIC and the State of Andhra Pradesh in accordance with the law.

Conclusion

In accordance with the present case, it can be concluded that the presence of the arbitration clause cannot bar the invoking of the constitutional remedy that is writ jurisdiction under Article 226 of the Constitution. In the present judgment, Unitech who was an investor was entitled to get the refund of the entire amount with interest from the date of payment without compounding. This is because the investors had undisputed claims against the State and its instrumentalities. This precedent is considered to be one of the landmark judgments for the future Government contract with the private investors to make them understand that they must not violate any constitutional provision and must act fairly and reasonably.

References

  1. https://www.amsshardul.com/wp-content/uploads/2021/03/Alert-Arbitration-Issue-65-March-2021.pdf
  2. http://www.ssdas.in/whether-existence-of-arbitration-clause-would-divest-the-high-court-of-its-jurisdiction-under-article-226-of-the-constitution-of-india/
  3. https://hsalegal.com/wp-content/uploads/2021/03/HSA-Dispute-Resolution-March-2021.pdf
  4. https://www.mondaq.com/india/arbitration-dispute-resolution/1043164/presence-of-an-arbitration-
  5. https://lexforti.com/legal-news/is-a-writ-petition-maintainable-in-contracts-of-government-state/

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