Paulmech Infrastructure Private … vs The State Of Odisha on 4 October, 2021


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Supreme Court of India

Paulmech Infrastructure Private … vs The State Of Odisha on 4 October, 2021

Author: A.S. Bopanna

Bench: M.R. Shah, A.S. Bopanna

                                                                  REPORTABLE


                                  IN THE SUPREME COURT OF INDIA

                                  CIVIL APPELLATE JURISDICTION

                                   CIVIL APPEAL NO. 6023 OF 2021
                              (Arising out of SLP(Civil) No.25409/2017)


                         Paulmech Infrastructure Private           ….Appellant(s)
                         Limited

                                                Versus


                         The State of Odisha & Ors.            …. Respondent(s)



                                           JUDGMENT

A.S. Bopanna,J.

1. The appellant is before this Court assailing the

order dated 09.03.2017 passed by the High Court of

Orissa at Cuttack, in W.P.(C) No.23103/2013. By the

said order the High Court was of the opinion that the

disputed questions of fact involved in the petition cannot
Signature Not Verified

Digitally signed by R

be gone into in the writ jurisdiction. Accordingly, the
Natarajan
Date: 2021.10.04
16:15:22 IST
Reason:

prayer made in the petition was not entertained and the

1
appellant was relegated to approach the appropriate

forum available for redressal of its grievance. The

appellant, therefore being aggrieved is before this Court.

2. The respondent No.1­State of Odisha had granted

the lease of the property in question in favour of the

respondent No.5­Utkal Ashok Hotel Corporation Limited

(for short ‘UAHCL’) for 99 years under the document

dated 24.01.1989. UAHCL was, in that view, running an

establishment in the name and style ‘Hotel Nilachal

Ashok’ in the said premises at Puri. The same being

unviable was closed down with the approval of Board of

Directors in the year 2004. Thereafter, UAHCL decided to

lease out the same for a period of 40 years. Tender was

floated in the year 2009. The appellant was one among

the tenderers who participated in the process and being

the highest bidder was considered. Accordingly, the

Letter of Intent (for short ‘LOI’) dated 19.01.2010 was

issued in favour of the appellant delineating the terms to

be complied pursuant to which the lease agreement was

to be signed.

2

3. Among the other conditions which were to form

part of the lease agreement, even before executing the

lease agreement the requirement was for the appellant to

pay a sum of Rs.9.34 crores to UAHCL within 30

days, of which Rs.8.82 crores was towards non­

refundable amount which was to be paid upfront; the

security deposit of Rs.26 lakhs and the advance

minimum guaranteed annual lease premium for the first

year of Rs.26 lakhs was also to be paid.

4. On payment of the said amount the lease was to

be executed and the other conditions would come into

operation. The appellant who was unable to pay the

amount within the time stipulated, requested the UAHCL

that they be permitted to deposit a part of the amount

i.e., Rs.4.41 crores on 19.09.2010 and the balance

amount by 15.04.2010 which was favourably considered

by UAHCL through their communication dated

12.02.2010. Such indulgence was shown as special case.

The appellant accordingly deposited a portion of upfront

amount to the tune of Rs.4.41 crores on 18.02.2010, but

the balance amount was not deposited within the

3
extended time stipulated i.e., before 15.04.2010. In that

view, the lease agreement could not be executed.

However, in view of the request from the appellant,

UAHCL through their communication dated 25.11.2010

once again acceded to the request permitting the

appellant to pay the balance amount before 15.12.2010.

5. The appellant thereafter paid (i) the sum of Rs.2

crores on 28.12.2010, (ii) sum of Rs.1.41 crores on

29.12.2010 and (iii) the sum of Rs.70 lakhs on

07.01.2011. Such payment, according to the appellant

constitutes the payment which was required to be made

as per the LOI. However, the time gap which had ensued

had created a position wherein the grievance of the

employees was to be addressed and they were to be given

the benefit of voluntary retirement. Since the LOI dated

19.01.2010 had also provided for regulating the manner

in which the employees are to be treated during the lease

period and had provided the liberty to offer voluntary

retirement, the UAHCL required the appellant to bear the

liability towards the same. The same did not reach a

finality and in the meanwhile the Board of Directors of

4
UAHCL took the decision to terminate the LOI dated

19.01.2010 since the appellant had failed to comply with

clause 2 thereof, which required the payment of Rs.9.34

crores within 30 days of issuance of LOI.

6. Even prior to communication of the decision on

10.12.2013, the appellant filed the special writ petition

before the High Court on 01.10.2013 wherein a prayer

was sought to direct UAHCL to execute the lease

agreement pursuant to the terms agreed under LOI dated

19.01.2010 and accept the balance amount along with

interest for delayed payment. During the pendency of

the writ petition the prayer was amended and the

appellant sought for quashing the letter dated

10.12.2013 whereby UAHCL decided to terminate the

LOI. UAHCL had filed their objection statement opposing

the writ petition including contending therein with regard

to the maintainability of the writ petition in a contractual

matter. The learned Division Bench of the High Court

having taken note of the rival contentions and the

dispute involved for adjudication, was of the opinion that

the disputed questions are best left to be resolved before

5
the appropriate forum. The appellant is assailing the said

order.

7. We have heard Mr. Sanjay Bansal, learned counsel

appearing for the appellant, Mr. Ashok Kumar Gupta,

learned senior counsel appearing for UAHCL and

perused the appeal papers.

8. The learned counsel for the appellant would

contend that the action of UAHCL to cancel the LOI and

retain the amount paid thereunder is not justified. In an

attempt to fortify his submission, the learned counsel

has referred to LOI dated 19.01.2010 with reference to

clause 2, to point out that the upfront amount payable

within 30 days though not paid within the time

stipulated therein, the appellant had sought extension of

time to pay which was agreed to by the communication

dated 04.02.2010 and extended by the communication

dated 25.11.2010. Though the time agreed thereunder is

up to15.12.2010, the amount paid by the appellant on

28.12.2010 (Rs.2 crores), 29.12.2010 (Rs.1.41 crores)

and 07.11.2011 (Rs.70 lakhs) had been accepted without

demur and as such the upfront payment of Rs.8.82

6
crores as required had been paid. In that view, the lease

agreement was required to be executed. It is contended,

though that was position, UAHCL instead of executing

the lease agreement had through the communication

dated 13.04.2011 raised the issue of the appellant

having to bear the total liability on account of providing

voluntary retirement to the employees which was as per

the decision of the Board of UAHCL due to insistence of

the State Government, though it was not a condition in

the LOI nor could have been included in the lease

agreement. It is pointed out that clause 11 of the LOI

though provided for regulating the manner in which the

employees are to be maintained had indicated that the

appellant shall not retrench them but the liberty was for

the appellant to consider VRS. As such it could not be

imposed on the appellant is the contention. In such

circumstance, it is contended by the learned counsel that

the appellant having made the payment was entitled for

the lease agreement to be executed in their favour. Hence

the termination being bad, be set aside and the UAHCL

7
be directed to execute the lease agreement is his

submission.

9. The learned counsel for UAHCL would on the other

hand contend that the LOI was issued in favour of the

appellant after the tender process and as such the terms

of the LOI was required to be complied. Despite the

payment of Rs.9.34 crores required to be made within 30

days, the appellant had failed to comply with the same. It

is true that as per the request of the appellant the time

was extended, but it was only a concession as a special

case. Even as per the extension granted the payment was

required to be made by 15.12.2010. But, even as per the

admitted case of the appellant the payment towards the

balance of the upfront amount was made only on

28.12.2010, 29.12.2010 and 07.01.2011 which was

subsequent to the date till which extension was provided.

That apart, since the requirement is to pay Rs.9.34

crores within the time stipulated, the security deposit

and advance minimum guaranteed annual lease

premium amount was also required to be paid within the

time stipulated but had not been paid. As such the

8
appellant cannot contend that they have performed their

obligation so as to assail the termination of LOI and seek

execution of the lease agreement. In that view, while

justifying the termination it is also contended that the

upfront amount of Rs.8.82 crores being one­time non­

refundable amount, it is within the powers of UAHCL to

retain the same. Alternatively, it is contended that

UAHCL was forced to incur idle expenses towards

maintenance and the benefits payable to the employees

without getting returns as the lease had not materialised

due to the default committed by the appellant. In this

regard, roughly an amount of Rs.4.5 crores has been

incurred by UAHCL which in any event, the appellant is

liable to reimburse. In that view, the learned counsel

seeks that the appeal be dismissed.

10. In the light of the contentions put forth, it is seen

that the lease agreement was to be entered into between

the parties pursuant to the terms depicted in LOI and on

compliance of the initial obligations set out therein. The

present dispute relates to the initial payment that was

required to be made by the appellant within the time

9
frame set out in the LOI and non­adherence to which has

resulted in termination of LOI. Clause 2 of the LOI

provides for the same, which reads as hereunder: ­

“2. You shall execute the Operating Lease
Agreement within 30 days of the issue of LOI
and pay an amount of Rs.9.34 crore within
these 30 days as per following details

i. One­time non­refundable upfront
payment of Rs.8.82 crore.

ii. Security Deposit (Rs.26.00 lakh) as per
article iv.

iii. Advance Minimum Guaranteed Annual
Lease Premium for the first year
(Rs.26.00 lakh) as per annex­ix­
Financial Bid.”

11. A perusal of the same indicates that the appellant

was obliged to pay an amount of Rs.9.34 crore within

30 days from 19.01.2010 and execute the Operating

Lease Agreement. Towards the said amount, a sum of

Rs. 8.82 crore was payable upfront as an one­time non­

refundable amount. Though the learned counsel for the

appellant sought to contend that the Minimum

Guaranteed Annual Lease Premium and Security

deposit of Rs. 26 lakh each are to be paid subsequently

10
when the lease is executed, in our view it cannot be

considered to be loose ended. Since Clause 2 refers to

Rs.9.34 crore which is payable in 30 days and that

includes the said amount of Advance Annual Premium

and Security deposit, the entire amount was payable

within 30 days. And the Lease Agreement was

simultaneously executable. It only means that the same

should be paid and the formality of execution of Lease

Agreement also should be completed in the said 30 days

and the payment to be made includes the upfront

amount of Rs.8.82 crore.

12. In that backdrop it is necessary to examine the

manner in which the things have proceeded after issue

of LOI. Admittedly the appellant was not ready with the

amount to make the payment within the timeframe

contemplated under Clause 2 of LOI. The appellant,

through their letter dated 04.02.2010 requested UAHCL

that they be allowed to pay 50% of the bid money by

19.02.2010 which in our view will include all the

components indicated in Clause 2 of LOI and not just

the upfront component. The rest of the money was

11
undertaken to be paid by 15.04.2010. UAHCL through

their reply dated 12.02.2010 allowed the same as a

special case. The appellant once again through their

letter dated 17.11.2010 requested for extension of time

for payment of Rs.4.93 crore. UAHCL again extended

the time till 15.12.2010.

13. Despite such indulgence shown by UAHCL the

appellant did not make the balance payment before

15.12.2010. Instead, the sum of Rs.4.11 crore was paid

subsequent thereto and that too, in instalments of Rs. 2

crores on 28.12.2010; Rs.1.41 crore on 29.12.2010 and

Rs.70 lakhs on 07.01.2011.

14. Though the learned counsel for the appellant seeks

to contend that UAHCL having received the said

payment cannot at this stage contend that the payment

was not made within the time stipulated, we are unable

to accept such contention. UAHCL is a corporation

which has different departments and as such the

remittance made being accepted in itself cannot be taken

as an act to condone the delay caused by the appellant

in complying with the terms of the LOI so as to alter the

12
terms of contract. There is no material on record that

subsequent to 15.12.2010, there is any positive act on

behalf of UAHCL to either extend the time for payment or

for having expressly condoned the delay and having

accepted the payment so as to regularise the

transaction. This is relevant more so in the context that

at an earlier point as against the time stipulated for

payment under the LOI specific correspondence was

exchanged between the parties and the time had been

expressly extended prior to the time fixed earlier having

expired. In such situation, when admittedly the balance

payment had not been made prior to 15.12.2010, unless

the appellant had obtained express extension from

UAHCL mere tendering the payment and the same

having been accepted cannot be construed as a positive

act to alter the contract.

15. No doubt, the appellants have relied on the

communication dated 13.04.2011 addressed by the

General Manager, UAHCL indicating therein that the

issue of offering VRS to all the employees unwilling to

join the new management was a consideration and the

13
VRS amount will have to be paid by the appellant to

UAHCL. Apart from the reason assigned by the High

Court to indicate that the same cannot be treated in

favour of the appellant, the said letter does not indicate

that the discussion in that regard was after indicating to

the appellant that the delay in payment of the upfront

amount has been condoned and accepted. If at all the

said aspect relating to VRS of the employees was also

mutually agreed and, in that context, if UAHCL had

proceeded to condone the delay and enter into the lease

agreement it is only in such circumstance the exchange

of correspondence in that regard would have assumed

relevance. If that be the position, when admittedly the

appellant was required to make the agreed payments

within the timeframe indicated under LOI dated

09.01.2010 and the appellants themselves being unable

to comply with the requirement, though having secured

extensions on two occasions cannot turn around to

contend otherwise at this juncture. Despite the extended

period having come to an end on 15.12.2010, the

appellant not having made the full payment within the

14
said date cannot at this stage contend to have complied

with the terms so as to seek a direction to UAHCL to

execute the lease agreement. In fact, the High Court

having examined the material on record has also arrived

at such conclusion.

16. Notwithstanding such conclusion reached by the

High Court, ultimately it has arrived at the decision that

in view of the disputed questions to be resolved between

the parties, the same cannot be gone into in writ

jurisdiction. The learned counsel for the appellant in

that view has placed reliance to the case in Unitech

Ltd. and Others vs. Telangana State Industrial

Infrastructure Corporation (TSICC and Ors.) 2021 (2)

SCALE 653, the decision to which one of us (Mr. Justice

M.R. Shah) is a member on the Bench, with specific

reference to para 32 thereof, which reads as hereunder:

“32. Much of the ground which was sought to be
canvassed in the course of the pleadings is now
subsumed in the submissions which have been
urged before this Court on behalf of the State of
Telangana and TSIIC. As we have noted earlier,
during the course of the hearing, learned Senior
Counsel appearing on behalf of the State of
Telangana and TSIIC informed the Court that the
entitlement of Unitech to seek a refund is not
questioned nor is the availability of the land for

15
carrying out the project being placed in issue.

Learned Senior Counsel also 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 of the Constitution. However, to
clear the ground, it is necessary to postulate that
recourse to the jurisdiction under Article 226 of the
Constitution is not excluded altogether in a
contractual matter. A public law remedy is available
for enforcing legal rights subject to well­settled
parameters.”

17. Having noted the said decision, a reference to the

order passed by the High Court would indicate that the

High Court though having referred to the decisions in

Arya Vyasa Sabha v. Commissioner of Hindu

Charitable & Religious Institutions & Endowments,

AIR 1976 SC 475, DLF Housing Construction Private

Ltd. Vs. Delhi Municipal Corporation AIR 1976 SC

386, National Textile Corporation Ltd. vs. Haribox

Swalram AIR 2004 SCC 1998 , Dwarka Prasad v. B.D.

Agarwal, AIR 2003 SC 2686, and Defence Enclave

Residents’ Society v. State of U.P. AIR 2004 SC 4877

to note the limitations while considering a writ petition

under Article 226 of the Constitution of India has in that

view taken note of the fact situation arising in the

16
instant case. It is on facts that the High Court has

arrived at the conclusion that such disputed questions

of fact cannot be resolved in the writ petition of the

present nature. Therefore, in the present facts, the High

Court has not dismissed the writ petition on

maintainability but having taken note of the issue

involved was of the opinion that the contentions urged

would necessitate the requirement of recording evidence

and therefore relegated the parties to an appropriate

forum. To that extent, though we take note of the

observations made by the High Court, keeping in view

the nature of the considerations made, the prayers

which were sought in the amended writ petition were

required to be conclusively answered by the High Court

on the aspect as to whether the decision of UAHCL to

terminate the LOI dated 19.01.2010 was justified and

the requirement for resolution of the dispute by an

appropriate forum ought to have been left open only to

the incidental aspect which may require appropriate

evidence to be tendered and adjudication to be made by

an appropriate forum.

17

18. Keeping these aspects in view, having noted that the

appellant had failed to adhere to the terms indicated in

the LOI dated 19.01.2010 and the payment required

thereunder not being made even within the extended

period, the Board of Directors of UAHCL were justified in

deciding to terminate the LOI through their letter dated

10.12.2013. In fact, the prayer no. 3 seeking calculation

of interest on the amount deposited and such amount is

being sought to be adjusted towards the balance

payments would in itself indicate that even to the

knowledge of the appellant, the entire payments had not

been made even as on the date of the filing the writ

petition. In such circumstance, when the LOI has been

rightly terminated, the directions sought in the writ

petition to execute the lease agreement pertaining to

‘Hotel Nilanchal Ashok’, Puri does not arise and the

prayers in that regard are liable to be rejected.

19. Having arrived at the above conclusion, the next

aspect which would engage our attention is as to the

manner in which the amount paid by the appellant is to

be treated. The learned counsel for UAHCL would

18
contend that the LOI provides that the one­time upfront

amount to be paid is non­refundable, in that view, it is

contended that the said amount is not liable to be

refunded. Even otherwise due to the delay caused by the

appellant and having obtained the status­quo order from

the court by litigating with regard to the subject matter

UAHCL have been prevented from otherwise utilising the

property which has caused loss to them and the said

amount would be adjustable towards the same is his

contention.

20. On taking note of the contention, a close perusal of

the phrase employed in the LOI would indicate the one­

time payment made upfront is shown as “non­

refundable” and such payment is towards execution of

the Operating Lease Agreement. If that be the position,

the terms of LOI is clear that the said payment is towards

the lease rentals and is the upfront payment which

becomes a part of the lease transaction and therefore not

refundable only if the lease agreement comes into

operation and not otherwise. The word employed is not

“forfeiture”, therefore, the amount payable towards the

19
advance lease rentals and the other advance payments

provided in clause 2 of the LOI, cannot be forfeited if

there is default in complying with the term and entering

into the lease agreement, going by the stipulations

contained in the LOI governing the parties herein. That

apart, as noted, the amount was required to be paid,

latest by the extended date i.e., 15.10.2010. The very

termination of the LOI is for the reason that the entire

payment was not made even within the timeframe. The

cause for termination of LOI occurred on 15.10.2010.

Hence the amount paid on 28.12.2010 (Rs.2 crores),

29.12.2010 (Rs.1.41crores) and 7.01.2011 (Rs. 70 lakhs)

being clearly made after the said date in any event

cannot be retained by UAHCL as otherwise it will amount

to unjust enrichment. Therefore, it is liable to be

refunded. Even with regard to the amount of Rs.4.41

crores which was paid on 07.02.2010, since we have held

that the same cannot be forfeited it is an amount which

will be available for accounting. In a normal

circumstance, a direction was required to be issued to

refund the said amount also.

20

21. However, as noted it is the contention on behalf of

UAHCL that due to the conduct of the appellant in not

paying the amount within time and completing the lease

agreement formalities and thereafter involving UAHCL in

litigation and taking benefit of the status quo order,

UAHCL was unable to utilise the property but on the

other hand had to incur expenses. On this aspect, prima

facie it is seen that the lease transaction ought to have

been entered into before 19.02.2010. It is on account of

the difficulty expressed by the appellant, the time for

payment of upfront amount was extended ultimately up

to 15.12.2010, in which process itself more than 10

months had elapsed. Soon thereafter the appellant had

filed the writ petition before the High Court and the

matter has been pending before one forum or the other

for nearly a decade during which time the property could

not be utilised nor expenses could be frozen. Even if that

be so, it would not be appropriate for this Court to

hazard a guess with regard to the actual loss that would

have been suffered by UAHCL. At the same time, when

this prima facie aspect is noticed it would also not be
21
appropriate for this Court to direct UAHCL to refund the

amount to the extent of Rs.4.41 crore which was paid

within the timeframe and allow UAHCL to thereafter

initiate recovery process. On the other hand, it would be

in the interest of justice to permit UAHCL to retain the

amount and grant liberty to the appellant to file an

appropriately constituted civil suit seeking recovery of the

said amount. In the said proceedings it would be open for

UAHCL to put forth the contention to set off the amount

towards the loss suffered by them or to seek for counter

claim if any further amount is due. In such proceedings

it would be open for the competent civil court to

independently consider that aspect of the matter on its

own merits for which we have not expressed any opinion

on merits relating to that aspect. Even with regard to the

claim of interest, if any, by the appellant that aspect is

also kept open to be adjudicated in the civil suit. The

pendency of the suit shall not be an impediment for

UAHCL to deal with the property or to re­tender the same

in any manner.

22

22. In the light of the above we pass the following

order:­

(i) The order dated 09.03.2017 passed by

High Court of Orissa at Cuttack in W.P.

(C) No.23103/2013 stands modified.

(ii) In that view, the prayer of the appellant

to quash the letter dated 10.12.2013

terminating the letter of LOI dated

19.01.2010 stands rejected.

Consequently, the termination of LOI

dated 19.01.2010 is upheld. However,

UAHCL is directed to refund the

amounts deposited by the appellant on

28.12.2010 (Rs.2 crores), on 29.12.2010

(Rs.1.41 crores) and on 07.01.2011

(Rs.70 lakhs), in all amounting to

Rs.4.11 crores within four weeks from

this day.

(iii) The appellant is reserved liberty to file a

civil suit for recovery of Rs.4.41 crores

23
paid to UAHCL on 17.02.2010 subject to

the observations made above and all

contentions of the parties in that regard

are left open.

(iv) In view of the above conclusions and

disposal of the appeal, the amount of

Rs.3 crores deposited by the appellant

before this Court, which is kept in fixed

deposit shall be refunded to the

appellant with accrued interest thereon.

(v) The appeal is disposed of accordingly

with no order as to costs.

(vi) Pending application, if any, shall stand

disposed of.

……………………J.

(M.R. SHAH)

……………………J.

(A.S. BOPANNA)

New Delhi,
October 04, 2021

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