Standard Chartered Bank & Anr vs Tilak Mehra & Ors

i.,"12th December, 1905","A lease for 100 years commencing

from 12th April, 1906 and expiring on

11th February, 2006 with an option to

the Lessee for taking a fresh lease

for a further term of 100 years

commencing from 12th January, 2006

a rent to be decided in the manner

contained in the lease deed itself

ii.,"20th April, 1927","Lease of further six Cottahs of land

adjoining the said premises for the

unexpired portion of the term 100

years, i.e. until February 11, 2006 on

the same terms and conditions as

provided in the principal indenture.

(Vol. I/Pp 135-138).

iii.,,"I n terms of the lease the Lessee

(Standard Chartered Bank

constructed a building : total built up

area 1,24,000 Square Feet. The

Lessee inducted various tenants and

enjoyed the rents, issues and profits

of the property which was in their

possession.

iv.,"14th July, 2003","T he Lessee, Standard Chartered

Bank, exercised option in terms of the

Lease for a further period of 100

years upon expiry of the existing

lease with an undertaking to pay

monthly rent to be arrived at in terms

of the lease. (Vol. I, Pp 59, 160).

v.,"18th July, 2003","T he Lessee, Standard Chartered

Bank, executed a Deed of

Assignment in favour of Cold Gold

Syntex (hereinafter referred to as the

Assignee). (Vol.I, Pp 160 to 194).

vi.,"22nd July, 2003","The Lessee informed the Lessors

that they have assigned the leasehold

interest in favour of the Assignee.

(Vol.I, P 161).

vii.,"24th July, 2003","The Assignee informed the Lessors

that the Lessee has assigned the

leasehold interest to them : request

for renewal of the lease for another

period of 100 years after expiry of

the present lease on the terms and

conditions to be mutually agreed

upon. (Vol.I, P-162).

viii.,"1 0 t h September,

2003","The Lessors addressed a letter to the

Lessee Standard Chartered Bank

that on the basis of valuation report of

Talbot & Company monthly rent for

t h e renewed period would be

Rs.25,61,431.25 P and that the Bank

as the Lessee remain liable for

payment of such rent. (Vol.I, Pp 195-

196).

ix.,"1st October, 2003","The Lessors reiterated that the fresh

lease would be only with the Bank

who would be liable for all obligations

under the new lease. The Lessors

refused to recognize the so called

Assignee. (Vol.I, Pp 188-199).

x.,"6 / 7 t h November,

2003","The Lessors insisted that the fresh

lease would only be with the Bank

and not with the Assignee. (Vol.I, Pp

202-203)

xi.,"12th May, 2004","The Lessors filed a suit, being C.S

No. 136 of 2004, for specific

performance of the agreement for

lease against the Standard Chartered

Bank, and a decree for eviction

against the Assignee (copy of the

plaint supplied).

xii.,"20th May, 2004","On an interlocutory application in the

suit the parties were directed to

maintain status quo as on date until

further orders. (Vol.I, P-59)

xiii.,"8th February, 2006","The Lessee (Standard Chartered

Bank) and the Assignee (Cold Gold

Syntex) jointly as Plaintiffs filed a suit

being C.S. No. 35 of 2006 fo

specific performance of the contract

as contained in the deed of lease

dated 12th December, 1995 by

directing the defendants to execute

and register a deed of lease for a

further term of 100 years in favour of

the Plaintiff No. 2 (assignee);

declaration, if necessary, that the

defendants/Lessors are obliged to

execute and register a fresh deed of

lease for a further term of 100 years

commencing from February 13, 2006

in terms of the deed of the lease

dated 12th December, 1905; and for

various other reliefs. (copy supplied

to the Court).

xiv.,"13th April, 2006","Interlocutory application made in the

Lessors’ suit, i.e. C.S.No.136 o

2004 was finally disposed of by a

Judgment and Order of this

Hon’ble Court. It was recorded

in the order that the Lessee (Standard

Chartered Bank), is admittedly not in

physical possession of the property

and there are large number of

occupants inducted by the Assignee/

defendant by that time. The Court

permitted the Bank to remain in legal

possession through the Assignee. It

was held that the

Assignee/Defendant would be

entitled to collect the monthly rent

and/or occupation charges and shall

keep an account of such collection

and shall meet all the outgoings

including maintenance charges and

would supply a statement of monthly

accounts of income and expenditure

to the Joint Receivers who shall keep

the same in a sealed cover. (Vol. I,

Pp 60 to 73) at page 72-73.

xv.,"11th May, 2007","When the said two Suits were

pending, parties, i.e. the Lessors,

Lessee and the Assignee/Defendant,

executed and entered into an

arbitration agreement containing the

following terms:-

a ) All disputes and differences

amongst the parties in the suits

referred to the arbitration of Sri

P.C.Sen, Sri Ahin Choudhury and Sr

Pradip Kumar Dutta, Senior

Advocates.

b) The Arbitrators were to ascertain

the monthly rent payable in respect of

the premises in terms of the Lease

Deed dated 12thDecember, 1905.

c) The parties agreed and undertook

to withdraw their respective Suits

unconditionally.

d) The Lessee (Standard Chartere

Bank) and the Assignee undertook

not to encumber or alienate in any

manner the said Premises or any

portion thereof while the arbitration

remained pending.

e) All the parties agreed to abide by

and be bound by the Award to be

passed by the Arbitral Tribunal.

Respondents had prevented it from using the property. Learned Senior Counsel relies on Gokul Chandra Seal â€"versus- Atlas and Union Jute Press,,

Company Ltd. reported in AIR 1986 Cal 393 to support such contention.,,

It is submitted that renewal of a lease as opposed to an extension contemplates a new relationship between the parties created by a new registered,,

instrument and relied on judgment reported in (2006) 3 CHN 322 (para 13) for such purpose that the award of the majority Arbitrators in this regard,,

has been made without considering any of the questions of law germane to the issue, which renders such part of the award against public policy. He",,

further contended that the said portion of the award is contrary to law and contrary to judicial pronouncement which, in any event, warrants its setting",,

aside under Section 34 of the Arbitration and Conciliation Act, 1996.",,

The petitioners have further challenged the determination of lease rent on the ground that the Arbitrators have proceeded to pass the award without,,

examining the evidence on record. The Learned Senior Counsel argues that there is procedural perversity which afflicts the award inasmuch as the,,

Arbitrators have failed to consider the oral evidence adduced with regard to valuation. He assails the valuation and determination of lease rent on the,,

ground that the Arbitrators have proceeded to value the property as vacant, whereas in fact the property is occupied by several tenants. He contends",,

that the decision of Arbitrators to reject the valuation report treating the property partially occupied one is contrary to law as for a renewal of a lease,,

the law does not require the lessee or its sub-lessees to vacate the property in its occupation during the period of the original lease.,,

The challenge to the portion of the award by the petitioner No.2 is essentially on the ground of public policy which includes failure to consider relevant,,

and material evidence, failure to consider extant laws or implication, failure to construe the lease deed as a commercial document; proceeding on",,

absurd construction of the commercial document which would rob it of its commercial efficacy; wholly ignoring the oral evidence laid on the valuation,,

report and wholly ignoring the argument advanced on behalf of the petitioner No.2 with regard thereto.,,

Mr. Saha also submitted that sufficient grounds have been made to set aside the portions of the award which are in conflict with the public policy of,,

India within the meaning of section 34(b) (ii) of the Arbitration and Conciliation Act, 1996 as such portions are in contravention of settled positions of",,

law and adverted to the Arbitration (amendment) Act of 2015 providing addition of provisions to section 34 of the Arbitration and Conciliation Act of,,

1996 reproduced hereunder for profitable consideration-,,

(I) in sub-section (2), in clause (b), for the Explanation, the following Explanations shall be substituted, namely:â€" “Explanation 1.â€"For the",,

avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,â€" (i) the making of the award was induced or",,

affected by fraud or corruption or was in violation of section 75 or section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or,,

(iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.â€"For the avoidance of doubt, the test as to whether there is a",,

contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.â€; after sub-section (2), the following",,

sub-section shall be inserted, namely:â€" “(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may",,

also be set aside by the Learned Court, if the Learned Court finds that the award is vitiated by patent illegality appearing on the face of the award:",,

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.â€​,,

To fortify his argument Mr. Saha relied on the land mark decision of the Hon’ble Supreme Court in Associate Builders v. Delhi Development,,

Authority; (2015)3 SCC 49, wherein deliberation made on the limits on the power of the Court to interfere with arbitral awards under the various",,

heads of public policy. It was held that when an arbitral award is in conflict with the public policy of India as per s. 34(2)(b)(ii), the merits of an",,

arbitral award should be re-examined.,,

The decision goes on to enumerate the various heads under public policy of India. The constituents of public policy of India for violation of which an,,

award can be set aside have been held to be :,,

i. compliance with statutory and judicial precedents,,

ii. need for judicial approach-meaning that the Learned Arbitrator cannot act arbitrarily or capriciously,,

iii. the rules of natural justice must be adhered to.,,

iv. That the award must not fail the test of Wednesbury reasonableness,,

v. the award must not be contrary to the interest of India,,

vi. the award must not be contrary to justice or morality so as to shock the conscience of the Learned Court,,

vii. the award must not suffer from patent illegality,,

viii. the award must not be in contravention of the Arbitration and Conciliation Act of 1996 itself or,,

ix. the award must not be in contravention of the terms of the contract between the parties.,,

My attention is invited by Mr. Saha at paragraphs 17-19 and 27 of the decision. It has been held that an award which disregards the binding effect of,,

the judgment of a superior Court would be in violation of the fundamental public policy of Indian law. It is further held in the said paragraph that a,,

contravention of the substantive law in India would result in the death knell of any arbitral award. An award which is blatantly in violation of a,,

statutory provision of established judicial precedent cannot be said to be in public interest. Such an award is likely to adversely affected the,,

administration of justice and would be regarded as being contrary to the fundamental policy of Indian law.,,

At paragraph 20 to 30 of the said decision, it is been held that a decision which is perverse or so irrational that it falls short of the touchstone of the",,

Wednesbury principle of reasonableness are open to challenge in a court of law.,,

At paragraph 31 of the said decision, the Hon’ble Supreme Court has held that it is equally well-settled that where:",,

(i) a finding is based on no evidence, or",,

(ii) an arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or,,

(iii) ignore vital evidence in arriving at its decision, such decisions would necessarily be purpose.",,

Mr. Saha reiterated that when an arbitral award is in conflict with the public policy of India as per s. 34(2)(b)(ii), the merits of an arbitral award should",,

be re-examined as the award disregards the binding effect of judgments of superior Courts and substantive laws of India, the same is in violation of",,

fundamental public policy of India and the award falls short of the touchstone of the Wednesbury principle of reasonableness and if a finding is based,,

on no evidence or some vital evidence is ignored or some irrelevant evidence is considered, the award is perverse.",,

It is urged that such is the case here.,,

Per contra, Mr. Jayanta Mitra the learned senior counsel for the respondent lessors argued that no grounds under Section 34 of Arbitration and",,

Conciliation Act, 1996 have been made out by the petitioners for interfering with the Award of the Arbitrators.",,

Mr. Mitra categorically submitted that the Award of the Arbitral Tribunal as evidenced by the majority Award should be sustained by this Hon’ble,,

Court since under Section 29 of the Arbitration and Conciliation Act, 1996, the decision of the majority of the Arbitral Tribunal is the Award on the",,

disputes between the parties and he also relied on the cited case of Associate Builders (supra) to argue that if the Arbitral Tribunal construes a term in,,

a reasonable manner as a fair minded person would do, the Award cannot be held to be patently illegal. It is contended that the interpretation of the",,

Contract is within the jurisdiction of the Arbitral Tribunal and Court ought not to substitute its own construction of the agreement in place and stead of,,

the way the Arbitrators have construed it.,,

He further argued that under Section 34 of the 1996 Act, the Court does not sit as a Court of Appeal and cannot substitute its own view in place of",,

the view of the Arbitrators and that the construction put on the agreement by the majority Arbitrators is a perfectly reasonable construction of the,,

agreement.,,

It is also argued that the Assignees admittedly came into possession of the property in 2003 and the Lease expired in 2006. Immediately upon expiry,,

of the old lease, the renewed period under the Lease commenced whereupon the rent would become payable at the rate of Rs. 25,63,431.25 per",,

month being the rate unanimously decided by the Arbitrators on the basis of registered valuer’s report. The majority of the Arbitrators also held,,

that such enhanced rate would be applicable with effect from the date after expiry of the old lease that is 12th February, 2006. He argued that such",,

decision of the Arbitral Tribunal upon interpretation of the Deed of Lease, Deed of Assignment and the surrounding circumstances is reasonable and",,

cannot be held to be so unreasonable, arbitrary or outlandish as to entitle the Court to interfere with or set aside the Award.",,

It is submitted that under the 1996 Act, the arbitral Award can be set aside by the Court, only if any of the conditions contained in Section 34 (2)(a)",,

and (b) of the Act of 1996 is satisfied. In other words, unless the petitioners in an application under Section 34 of the Act can satisfy the Court that",,

any of the provisions in the said several sub-sections has been breached, the Court is not entitled to interfere with an Award.",,

On behalf of the respondents/lessors learned counsel placed reliance upon the Supreme Court decision in the case of National Highway Authority of,,

India â€"Vs- JSC Centrodostroy reported in (2016) 12 SCC 59 2and adverted my attention to paragraph-13 at page 596 wherein the Supreme Court,,

observed that the Award of the Arbitral Tribunal affirmed by the High Court was definitely within its jurisdiction. The Court went on to observe that it,,

had been consistently held by the Supreme Court that construction of the terms of a contract is primarily for an Arbitral Tribunal to decide, and unless",,

the Tribunal construes the contract in such a way that no fair-minded or reasonable person could do, no interference by Court is called for. Viewed",,

thus, the Supreme Court did not see any reason or justification to interfere with the Award.",,

It is to be noted that view of the majority Arbitrators was that the Lessors have been kept out of the property first by the Lessee, then by the",,

Assignee and that the monthly rent assessed by then would be payable in respect of the property the possession of which had admittedly been enjoyed,,

by the Lessee and thereafter by the Assignee.,,

In such circumstances, the Award given by the Arbitrators is not only reasonable, but also is fair and equitable. Admittedly, the property belongs to the",,

Lessors, and they are entitled to such sum as may be reasonably assessed to be the rent during the period when the same has been in occupation of",,

the Lessee/Assignee. Accordingly, the majority Arbitrators held that the monthly rent assessed by the Arbitrators would become payable immediately",,

upon expiry of the old lease upon the renewed period coming into operation, it can hardly be said that the Award of the Arbitral Tribunal is such as",,

would shock the conscience of the Court and such Award given by the Arbitrators is not only reasonable, but is also fair and equitable.",,

In Sutlej Construction Ltd â€"Vs- Union Territory of Chandigarh reported in (2018) 1 SCC 718 the Hon’ble Supreme Court has opined that if the,,

Award is a reasoned one and based upon appreciation of evidence, it was certainly not the function of the Court to re-appreciate the evidence and",,

come to a different conclusion.,,

Thus, I find that the Hon’ble Supreme Court deprecated the practice of re-appreciating the evidence or reassessing the contractual obligations by",,

the Court in order to come to a different conclusion than what has been arrived at by the Arbitrators. In paragraph-11 of the Judgment it has been,,

opined with emphasis that when it comes to setting aside an Award on the principle of public policy, it would mean that the Award should shock",,

conscience of the Court, and would not mean what the Court thinks unjust on the facts of the case seeking to substitute its views, for that of the",,

Arbitrator.,,

Mr. Mitra further argued even relying on the decision in Associate Builders (supra) that none of the decisions cited by the Petitioners in support of,,

their contention that the monthly rent payable under the new lease will commence only from the date of execution and registration of the new lease do,,

not, hold that there will be no obligation to pay rent at the rate assessed by the Arbitral Tribunal more so in light of the fact that the Arbitral Tribunal",,

has accepted the fact that there has been valid assignment of the existing lease and the right of renewal. The fact cannot be lost sight that the,,

petitioners filed suit for declaration and injunction that the assignment of the existing lease is valid and legal and sufficient as the lease deed provided a,,

right to the Standard Charter to assign it to any third party on the expiry of 100 years. Accordingly, it was prayed that assignment given by the",,

standard charter to the petitioner is valid assignment and for direction on the lessor to execute and register the deed of agreement.,,

Be it noted that a suit was filed on behalf of the lessee/respondent for a decree of eviction of the assignee/lessee and both the said suits were referred,,

to the Arbitral Tribunal for decision on consent of all parties with direction that all parties should maintain status quo. It means status quo in respect of,,

the possession of the leasehold property assigned to the petitioner no. 2 by the lessee petitioner no. 1, thus the property remained in possession of the",,

petitioner no. 1 as assignee. Therefore, it cannot be said that the assignee was restrained from enjoying the possession of the property in lease.",,

It is pertinent to take note of the fact that the predecessor of the respondent had not excepted the assignment of the lease by the petitioner no. 1 in,,

favor of the petitioner no. 2 so, the same was challenged by filing a suit for declaration that the purported assignment by the defendant no. 1 of his",,

leasehold interest in the said premises in favor of the defendant no. 2 intimated to the plaintiffs by its letter dated July 22, 2003 is illegal, null and void",,

and of no effect and not binding on the plaintiffs and further a decree of perpetual injunction restraining the defendants each of them from asserting,,

that the defendant no. 2 is an assignee of the leasehold interest and further prayed for perpetual injunction restraining the defendant no. 2 from,,

exercising any right as an assignee of the defendant no. 1 in respect of the suit premises. Amongst other prayers a decree was also prayed for a,,

specific performance against the defendant no. 1 for acting in terms of the agreement to execute a fresh lease in terms of the provisions of the lease,,

dated December 12, 1905 executed between the predecessors of the plaintiffs and the defendant no. 1. The said suit was numbered as C.S. No. 136",,

of 2004.,,

Mr. Mitra pointed out to the portion of the Award to this effect that Award does not provide that in the event arrears of rent is not paid by the,,

petitioners in terms of the Award, the respondents will, inter alia, be entitled to take such steps as may be necessary in accordance with law.",,

It is contended that in the event arrears of rent is not paid and the petitioners continue in illegal possession of the property, the Arbitrators ought to",,

have granted an award of eviction as against the lessee and assignee on their default of payment of arrears and execution of such renewed lease.,,

The respondents/lessors have taken exception to the Award on a small, but important aspect. It will be seen that the disputes in the two Suits, being",,

C.S. no. 136 of 2004 instituted by the lessors against the leasee and the Assignee, and C.S. no. 35 of 2006 filed by the leasee and the Assignee against",,

the lessors, were referred to Arbitration. One of the reliefs asked for in C.S. no. 136 of 2004 by the lessors is for eviction of the Assignee from the",,

said premises.,,

In the Majority Award (Vol II/ Page 523), it has been directed that in default of payment of arrears, the lessors would not be bound to execute the",,

renewed Lease and “shall be entitled to take such steps as may be necessary in accordance with law.â€​,,

Mr. Mitra submitted that exception is only with regard to this portion of the Award that in the event, the lessee/assignee do not execute the renewed",,

lease, it is reasonably apprehended that they would be continuing in possession without any authority of law. It is further submitted that in order to",,

prevent another set of protracted litigation lasting 20-30 years, the Arbitrators ought to have granted an award of eviction as against the lessee and",,

assignee on their default of payment of arrears and execution of such renewed lease.,,

I am of the view that the Award is deemed decree whereunder the lessors have been liberty to take such steps as may be necessary in accordance,,

with law. That means the lessors are entitled to put the decree into execution on the basis of the Award itself but obviously such Award for eviction,,

has to be undertaken in accordance with law.,,

Mr. P. Sancheti learned counsel appearing for the proforma respondents adopted the submissions of the Respondents and further contended that the,,

Arbitrators have deliberated upon the rate of rent and have given a reasoned decision. He contended that the Petitioners were aware that the property,,

is tenanted and at the expiry of the lease period, there is an implied surrender of lease before another fresh lease deed is executed. Hence, the",,

property ought to be valued as vacant only. As regards date of commencement of the enhanced rent, it is contended that such sum is payable from the",,

date of commencement of the lease term and is reserved for the entire period of renewal. He also contended that the Petitioners had not challenged,,

the order of status quo granted by this Court and had not prayed for any damages for its inability to use the property. Merely because the petitioner,,

could not transfer its interest due to the status quo order, it cannot be said that the petitioner did not enjoy the property. I fully agree with such",,

contention advanced by Mr. Sancheti.,,

I have gone through the decisions cited on behalf of the rival parties which are on the issue of determining the duration of a lease and the facts are,,

distinguishable from the instant case inasmuch as assignment of leasehold rights was not an issue in the cited cases. The fact that the assignee in the,,

instant case had stepped into the shoes of the assignor/lessee and had agreed to abide by all the terms and conditions of the existing lease and also of,,

the new Lease, including the condition that the monthly rent assessed by the Arbitral Tribunal, would become payable from the date immediately after",,

the existing Lease expired, is a glaring distinguishing feature from all the decisions cited on behalf of the petitioners.",,

Having anxiously heard learned counsels for the parties at length, perusal of the impugned Award and for reasons discussed above, I am of the view",,

that the arbitral tribunal has finally published the Award on appraisal of evidence led by the parties before it and the rate of rent fixed is on the basis of,,

Valuers, Engineers and Surveyors who led evidences as to the valuation of the property as on February, 2006.",,

It is also understood that the Arbitral Tribunal consisting of the three learned Arbitrators were unanimous that there has been a valid assignment by,,

the Lessee, Standard Chartered Bank in favor of the Assignee, Cold Gold Syntex, and such assignment could not be challenged by the Lessors. So, it",,

is evident that the prayer as made by the petitioner no. 2 Cold Gold Syntex has been substantially granted in their favor by the Arbitral Tribunal.,,

Therefore, the assignment of the lease by the Chartered Bank in favor of Cold Gold Syntex undoubtedly dates back to the date of assignment in",,

February, 2006. It is evident that the petitioner no. 1 as a lessee and/or the petitioner no. 2 as the assignee are in continuous possession of the valuable",,

property since the date of assignment so given by the Standard Charter Bank. Therefore, the assignee or the lessee are responsible for the payment of",,

rent as fixed by the Arbitral Tribunal.,,

It is settled principle of law on the public policy that the duty of the arbitral tribunal is to adopt a judicial approach, to adhere to the principles of natural",,

justice and that the decision of arbitral tribunal is not perverse or so irrational that no reasonable person would have arrived at such decision. On,,

perusal of the award and other materials placed on record and upon hearing learned counsel for all parties, I do not find any fault or failure on the part",,

of the arbitrators in consideration of relevant material evidence or extant law, ergo, I hold the Award published by the Arbitral Tribunal is not only",,

reasonable but is fair and equitable and no fair minded or a reasonable person can think of the terms of the Award as shocking to the conscience of a,,

person because the assignee has all through remained in enjoyment of the property by virtue of assignment given by the lessee, hence, he is liable and",,

has obligation to pay assessed rent from the date of assignment.,,

In the context of what has been discussed hereinabove, I am not inclined to interfere with the Award as the petitioners have not been able to",,

substantiate the strong grounds satisfying this Court the conditions embodied in Section 34(2)(a)(b) of the Act, 1996 warranting to set aside the",,

Impugned Award. Accordingly, the application under Section 34 of the Arbitration and Conciliation Act, 1996 are dismissed. Thus, AP No. 1341 of",,

2015 and AP No. 1502 of 2015 are disposed of.,,

Urgent certified photocopy of this Judgment, if applied for, be supplied to the parties upon compliance with all requisite formalities.",,