Today Homes & Infrastructure Pvt. Ltd vs JDS Apparels Ltd. & Anr

NAVIN CHAWLA, J

This petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act') challenging the

Arbitral Award dated 03.06.2015 passed by the Sole Arbitrator adjudicating the disputes that have arisen between the parties in relation to the Lease

Agreement dated 08.04.2009 executed between the parties for leasing out certain portion/area in the commercial complex and entertainment centre

named as 'North-Orbit Plaza' as also the Memorandum of Understanding (MoU) dated 08.04.2009 executed between the parties with respect to

extension of a loan of Rs. 1.50 crores by the petitioner to respondent no. 1.

The Petitioner, M/s. Today Homes and Infrastructure Private Ltd. had entered into a Development Agreement dated 27.03.2006 with respondent

no. 2, M/s. M.N Securities Private Limited, the original lessee and owner of the land which was used to develop the abovementioned commercial

complex.

The respondent no. 1 being interested in taking certain portion/area on lease in the said commercial complex, entered into the abovementioned

Lease Agreement with respondent no. 2 as the 'lessor', respondent no. 1 as the 'lessee' and the petitioner as the 'confirming party'. The tenure of the

lease was for a period of nine years commencing from 08.04.2009 and expiring on 08.04.2018, with the option given to the lessee to renew it for

further two periods of nine years each. The area being given on lease had been sold to various allottees who had authorized the petitioner to lease out

their respective unit to any retail/brand.

A Memorandum of Understanding dated 08.04.2009 was also entered into between the parties stating that the respondent no.1 had approached the

petitioner for a loan of Rs. 1,50,00,000/- for carrying out 'fit-outs' in the leased premises and that the petitioner had agreed to extend the said loan on

the terms contained in the MoU.

The MoU was followed by an Addendum dated 31.03.2010 recording that the petitioner had completed its scope of work as per Clauses 9 and 10

of the Agreement, which involved providing amenities like parking, landscaping, common area operations, security systems, etc., as also laid down the

revised manner and mode of release of loan amount. The Addendum also extended the Rent Commencement Date to 01.07.2010 from 01.10.2009 as

had been stipulated in the Lease Deed.

Dispute arose between the parties with the Respondent no. 1 terminating the Lease Deed vide its notice dated 16.11.2011 and demanding the

refund of the security deposit as also the damages, while the petitioner claimed that the termination of the Lease Deed was illegal and for extraneous

reasons and therefore, the petitioner was entitled to refund of the loan amount as also damages from the respondent no.1.

The Sole Arbitrator by the Impugned Award dated 03.06.2015 has held the termination of the Lease Deed to be valid and has allowed certain

claims of the respondent no. 1, while rejecting the counter claims of the petitioner. The operative portion of the Award with respect to the claims and

counter claims is reproduced hereinunder:

“Claim No.1- In respect of refund of security deposit Claimant is awarded a sum of Rs. 10,46,400/- (Rupees Ten Lakhs Forty six thousand four

hundred only) against respondent no. 2 together with interest @12% from 16.11.2011 till realization.

Claim no. 2-

Claimant is awarded a sum of Rs. 24,30,072/- (Rupees Twenty Four Lakhs Thirty Thousand and Seventy Two only) spent by it on the fit outs etc. for

the show room against the respondent no. 1 with interest @ 12% from the date of award till realization.

Claim no. 3-

Claim is rejected for the reasons set out in the award.

Claim no. 4-

Claim no.4 for loss of goodwill is rejected for the reasons set out in the award. Claim no. 5-

Claim is partly allowed for a sum of Rs. 3,65,350/- (Rupees Three Lakhs Sixty Five Thousand Three Hundred Fifty) in favour of claimant and against

the respondents for the reasons recorded.

Claimant to be entitled to interest @ 12 %per annum from the date of award till realization in respect of claim no's 2 and 5.

Counter Claims no. 1-5 for the reasons stated in the award are rejected.

Claimant's share of arbitral fee of Rs.12.5 lakhs and litigation costs assessed at Rs. 1.50 lakhs in these proceedings are awarded in favour of Claimant

and against Respondents.â€​

Learned counsel for the petitioner submits that that the finding of the Arbitrator holding that the termination of the Lease Deed was valid is

incorrect and contrary to the terms of the Lease Deed. He submits that Clause 5(i) of the Lease Deed provides for a lock-in period of 24 months.

As by way of the Addendum dated 31.03.2010, the “Rent Commencement Date†had been extended to 01.07.2010, the respondent no.1 could not

have terminated the Lease Deed vide its notice 16.11.2011, being within the lock-in period.

I have considered this submission of the learned counsel for the petitioner, however, find no force in the same.

Clause 5(i) of the Lease Deed is reproduced here in below:

 “5. Lock-in period:

(i)Both the parties shall treat the first 24 months from the date of commencement of the present lease, as lock-in period during which neither of the

parties can terminate the Agreement except as provided in clause 5(ii). In case, the Lessee terminates the Lease before the expiry of said lock-in

period, for reasons other than as provided in clause 5 (ii) and 5(iii), hereinafter, the Lessee shall be liable to pay only the monthly rent for the remaining

lock-in period. It is made clear that in the event of such termination, before the expiry of the lock-in-period, except for the monthly rent payable for the

remaining lock-in-period, no other charges whatever including maintenance charges (CAM) etc. shall be payable by the lessee to the lessor.â€​

A reading of the above clause would clearly show that the lock-in period was to be 24 months “from the date of commencement of the present

leaseâ€. Clause 2 of the Agreement gives the date of commencement of the Lease Deed as 08.04.2009. The lock-in period, therefore, had expired

when the notice of termination was issued by the respondent no.1. The lock-in period has no relation with the “Rent Commencement Date†as

defined in Clause 9 of the Lease Deed and as extended by Clause 4 of the Addendum dated 31.03.2010.

The Arbitrator has also considered the above submission and has held as under:

 “36. A careful perusal of clause 5 of the lease under the heading ""Lock in period"" shows there is no absolute prohibition for termination under

the clause. Exceptions are carved out for termination on grounds given in clause 5 (II) and 5(III) during the lockin period. Even if termination is done

during the lock in period, the only liability of the Lessee is to pay the monthly rent for the remaining lock in period. The validity of termination is not

affected thereby. Moreover, in this case even though the lease commencement date was 08.04.2009, parties had fixed the rent commencement date

as 01.10.2009 initially. There has also been failure and breach of other obligations regarding provisions of amenities and availability of sanctions and

permissions to make the mall operational. In these circumstances, it cannot be said lock in period could be counted from the date by which parties had

agreed to defer the rent commencement earlier.â€​

In view of the above, I find no merit in the submission made by the counsel for the petitioner.

Learned counsel for the petitioner, relying upon Section 108(e) of the Transfer of Property Act, 1882 submits that even assuming that the leased

property could not be used by the respondent no.1 due to the act of sealing by the Municipal Corporation of Delhi (MCD), the same being only

temporary in nature would not make the lease void or liable for termination, and the respondent no.1 could at best claim suspension of rent for the

period during which the leased premises remained sealed.

I do not find any merit in the above submission of the counsel for the petitioner. The Arbitrator has held that the notice terminating the lease was

premised on various breaches of the contract by the petitioner. The Mall in question had been booked for unauthorized construction on 20.08.2008 and

demolition order was also issued by the MCD. Thereafter, sealing order dated 18.12.2009 was also passed and property was sealed on 23.12.2009.

Though, it was de-sealed on 02.02.2010, it was resealed on 01.06.2010. It was again de-sealed on 16.06.2010 but subject to the condition that it would

not be occupied. It was resealed on 28.12.2010, culminating in the stay on demolition by the Appellate Tribunal, MCD on 28.01.2011. The Completion

Certificate was also rejected on 25.05.2010 and the regularization was finally accepted only on 09.03.2012, whereafter the petitioner paid the

regularization charges.

The Arbitrator also summarized these facts and has held as under:

 “33. From the evidence on record and the admissions as recorded, the factum of proceedings for initiation for unauthorized constructions against

the Respondents as far back in 20.08.2008 and later is established. Claimant has also proved on record the sealing and de-sealing of the property and

the fetters on occupation. The public notice put up by the MCD following the Tribunal's direction notifying that the application for regularization of

unauthorized construction and excess coverage was pending and anybody dealing or purchasing any shop therein would do so at his own risk is placed

on record. Lack of permission, absence of completion certificate and of occupancy certificate as also sealing and de-sealing of the Mall on

18.12.2009, 01.06.2010 and 20.12.2010. Regularization admittedly being allowed only on 09.03.2012 and completed with payment of regularization

charges on 17.04.2012 i.e. more than a year and half later, after the sealing on 18.12.2009 & 01.06.2010.

Lease Deed dated 08.04.2009, provided initial rent commencement date as 01.10.2009, it was extended by the Addendum dated 31.03.2010, to

01.06.2010. The Mall itself was sealed on 01.06.2010. In these facts and circumstances, Claimant terminating the lease vide its notice dated

16.11.2011, cannot be said to have acted in haste or without the Respondents getting reasonable time and opportunity to remedy their breach and/or to

fulfill their obligation by corrective action. It is accordingly held that the Claimant has succeeded in establishing the breach on the part of Respondent

to justify the termination of Lease.

xxxx

That perusal of the Ex. C-13 i.e. notice of termination dated 16.11.2011, shows that the grounds taken for termination are Respondents

representations enumerated therein being found false, failure to complete and operationalize the Mall and the same being sealed for unauthorized

construction and the inordinate delay in regularization of the Mall. Regularization plans were accepted only on 09.03.2012, with charges being paid on

17.04.2012. The Claimant accordingly terminated the Lease under Clause 5 (iii) r/w Clause 24. Alternatively and without prejudice notice to be treated

as one under clause 16 (i) of the Lease. The facts as proved on record and noted in preceding paras clearly fall within the ambit of the numerous

grounds that are provided under clause 5 r/w Clause 24. There is no merit in the contention that the termination under clause 5 r/w Clause 24 is not

legally sustainable or valid and is rejected.â€​

The above finding of the Arbitrator cannot be faulted. The termination of the Lease Deed having been done by the respondent no.1 in terms of the

Lease Deed, reliance of the petitioner on Section 108(e) of the Transfer of Property Act, 1882 cannot be accepted.

Learned counsel for the petitioner further submits that even if it is assumed that the Lease Deed had been properly terminated, the respondent

no.1 having not utilized the loan amount for the purpose of “fit-outsâ€, was liable to be directed to refund the said amount alongwith interest as

provided in the MoU. Â

I do not find any merit in the submission made by the counsel for the petitioner. The loan amount is governed by Clauses 5 (ii) and 5(iii) of the

Lease Deed, which are reproduced here in below:

“(ii). In consideration of the lessee agreeing to take the demised premises on lease, the confirming party has also agreed to advance certain

monetary facilities to the lessee for carrying out the fit out in the demised premises as per terms of a duly executed Memorandum Of Understanding

of the even date. Hereinafter called ""MOU"". It is clearly understood between the parties herein that in case the confirming party herein, fails to pay

the same to the lessee, in terms thereof, the lessee, in addition to its claims under the said Memorandum of Understanding, shall be at liberty to

terminate the present lease immediately forthwith and in that eventuality the lessee shall be entitled to refund of the entire security deposit, as stated in

clause 4 herein, and shall be further not liable to pay any amount to the lessor and or the ""Confirming party"", whatsoever, under the terms of this

agreement and the ""MOUâ€​ including but not limited to monthly rent, maintenance charges etc.

(iii). It is also understood that in the event of the Lessor not being able to provide the amenities, as stated in clause 10 hereinafter, even for a period till

31.03.2010, and the Lessee has spent all the loan amount after the fitout then in that case, the lessee shall be at liberty to terminate the present lease

immediately forthwith and in that eventuality the lessee shall be entitled to refund of the entire security deposit, as stated in clause 4 herein, and shall

be further not liable to pay any amount to the lessor and or the ""Confirming party"", whatsoever, under the terms of this agreement and the ""MOU"". In

case Lessee has not spent the full loan amount for fitout on the demised premises in that case Lessee has to refund the balance amount to the

confirming party herein immediately.â€​

The Arbitrator on consideration of the evidence led before him has held that the respondent no.1 has been able to prove that in addition to the loan

amount of Rs.1.50 crore it has spent a further sum of Rs.25,25,616/- making a total of Rs.1,75,25,616/- towards the fit-outs. In fact, the Arbitrator

holds that the expenditure of this excess amount demonstrates the commitment of the respondent no.1 to the project and improvisation of the outlet by

bona fideincurring expenses of its own in addition to the loan amount. Â

The respondent no.1 before the Arbitrator had also filed bills raised by the concerned vendors/professionals for such work and the payment proof

thereof. The respondent no.1 had also examined Mr.Nitin Mitra, its Finance Head to produce on record Statement of Account maintained by the

respondent no.1 with the UCO Bank, ING Vysya Bank and HDFC Bank Limited to demonstrate the payment to the vendors pertaining to the

showroom.

The Arbitrator in light of the above finding has held as under:

 “(vii) This aspect has been considered and examined in detail on the basis of evidence on record while considering claim no. 2. For reasons set

out there, it has been held that M/s JDS Apparels had duly expended total amount of Rs.1,75,25,616/- including Rs.1.50 Crores as loan on the fit outs

etc., in the show rooms. Accordingly, the basis on which the counter claim is founded i.e that the loan amount has not been spent for the purpose it

was given and is therefore liable to be returned, no longer exists. The respondent no. 1 in the counter claim has placed reliance on Clause no. 5 of the

lease deed providing that the part of loan which is not spent when the lease is terminated is liable to be returned. In the instant case, the entire amount

has been expended. It has also been held that the lease agreement has been validly terminated due to the breaches of the respondents. In the normal

course, the loan was repayable under the lease agreement, MoU and the addendum in 51 installments upon Mall becoming operational. However,

after the termination of the lease, M/s JDS Apparels have withdrawn from the premises, leaving interior fit outs etc., i.e. the building with whatever

value additions done by expending of the loan amount of Rs.1.50 crores in possession of the respondent to enure to its benefit. In view of the

foregoing discussions, the claim is held to be not admissible and rejected.â€​

I do not find any infirmity in the above finding of the Arbitrator. In any case, the above being a finding of fact arrived at by the Arbitrator on

appreciation of evidence led by the parties before him, cannot be interfered with or re-appreciated by this Court as if it is sitting as a Court of Appeal.

In Associate Builders v. DDA (2015) 3 SCC 49, the Supreme Court, after analyzing the provisions of Section 34 of the Act, has held as under:-

“33. It must clearly be understood that when a court is applying the “public policy†test to an arbitration award, it does not act as a court of

appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator

is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little

evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score [ Very often an

arbitrator is a lay person not necessarily trained in law. Lord Mansfield, a famous English Judge, once advised a high military officer in Jamaica who

needed to act as a Judge as follows:

“General, you have a sound head, and a good heart; take courage and you will do very well, in your occupation, in a court of equity. My advice is,

to make your decrees as your head and your heart dictate, to hear both sides patiently, to decide with firmness in the best manner you can; but be

careful not to assign your reasons, since your determination may be substantially right, although your reasons may be very bad, or essentially wrongâ€.

It is very important to bear this in mind when awards of lay arbitrators are challenged.] . Once it is found that the arbitrators approach is not arbitrary

or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1 SCC 594 :

(2012) 1 SCC (Civ) 342] , this Court held: (SCC pp. 601-02, para 21)

“21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be

challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second

respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the

second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by

the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of

the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent.

Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different

decision can be arrived at.â€​

It is with this very important caveat that the two fundamental principles which form part of the fundamental policy of Indian law (that the arbitrator

must have a judicial approach and that he must not act perversely) are to be understood.â€​

I therefore find no merit in the present petition and the same is dismissed with costs quantified at Rs.25,000/-.