THE HON'BLE SRI JUSTICE T. VINOD KUMAR
ARBITRATION APPLICATION Nos. 27 and 32 of 2022
COMMON ORDER:
1. These Arbitration Applications are filed under Section 11(6)
of the Arbitration and Conciliation Act, 1996 (hereinafter 'the Act,
1996') for appointment of an arbitrator to resolve the disputes
between the parties. Since the parties in the present applications are
same, the properties involved are abutting to each other and the
disputes raised are connected, they are disposed of by this common
order
2. Heard Mr. R. A. Achuthanand, learned counsel for the
Applicants and Mr. M. Pramod, representing Mr. A. Venkatesh,
learned counsel for Respondent.
3. The Applicants are the owners of A - Square Convention consisting of two built up AC Halls, including two lawns and kitchen, constructed over total land admeasuring Ac.8.00 Gts in Sy.No. 344/part situated at Narsingi village, Gandipet Mandal, R.R. District (hereinafter 'Subject Property No.1') and the land admeasuring 6680 Sq. yards in Sy.Nos. 346 and part of 347 2 situated at Narsingi village, Gandipet Mandal, R.R. District (hereinafter 'Subject Property No.2').
4. It is the case of the applicants that the respondents had approached them to grant a lease of the Subject Property No. 1 for the purpose of a function hall. It is contended that after due negotiations they had executed lease deed vide Doc. No. 7796 of 2017 dated 10.11.2017 in respect of Subject Property No.1 for a period of 13 years and 4 months from 01.03.2018. As per the lease deed, the monthly rent was fixed at Rs.10 lakhs upto 30 months, which will be increased to Rs.15 Lakhs for a period of 12 months. Thereafter the rents will be enhanced at 5% per annum.
5. It is contended that as the respondents intended to carry out high end horticulture, they again approached the applicants for lease of Subject Property No.2, as a result of the agreement arrived at they had executed a lease deed vide Doc. No. 11304 of 2018 dated 09.11.2018 for a period of 12 years and 3 months from 01.04.2019. The monthly rent was fixed at Rs. 4 Lakhs, subject to 5% yearly enhancement.
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6. Thus, the lease of the subject property No.1 commenced on 01.03.2018 with initial lease rent of Rs.10 lakhs, while the lease of subject property No.2 has commenced on 01.04.2019 with initial lease rent of Rs.4 lakhs.
7. It is contended by the applicants that the respondents had issued a letter dated 10.04.2020 requesting the applicants to waive the rent payable under the lease deeds, on account of lockdown imposed by the Government in view of Covid-19; and that the applicants have denied to waive the rent, vide letters dated 07.07.2020 and 20.07.2020, since lockdown was lifted from 31.05.2020.
8. Applicants further contend that, despite the exchange of correspondences with the respondents, they did not come forward to clear the dues from June, 2020. Resultantly, the applicants had issued separate notices dated 25.09.2020 terminating the lease. The notices of termination were issued invoking Clause 25 of the lease deed dated 10.11.2017 and Clause 19 of lease deed dated 09.11.2018. As the said Clause(s) in the lease deeds provided for arbitration as a mode of dispute resolution, the applicants 4 proposed the name of Hon'ble Sri Justice B. Prakash Rao (Retired) as an arbitrator to resolve the disputes between them.
9. It is contended that, subsequent to issuing the above said arbitration notices, on account of negotiations between the parties, they had entered into two MOU(s) both dated 05.05.2021, wherein an interim arrangement was made to facilitate the respondents to clear the arrears of rent. As the respondents had breached the terms of the MOU(s), the applicants had issued a notice dated 14.01.2022 reviving their earlier notices of termination both dated 25.09.2020.
10. As the respondents failed to reply to the notice dated 14.01.2022, the present arbitration applications are filed.
11. The respondents in their counter affidavit oppose the appointment of arbitrator. It is contended that the leased premises could not be run owing to the lockdown imposed by the Government in view of COVID-19. It is further contended that the imposition of lockdown was a Force Majeure event as per Clause 6 of the lease deed dated 10.11.2017 and Clause 5 of the lease deed dated 09.11.2018, thus the respondents were not liable 5 to pay rents for the disputed period. Therefore, the dispute raised by the applicants is ex-facie deadwood as the claims relate to a period when the Force Majeure event was in operation.
12. The dispute resolution Clause in lease deed dated 10.11.2017 is as under:
Clause 25: All disputes, controversies, claims and differences arising out of or in relation to this agreement or any breach hereof except those which cannot be settled by arbitration through correspondence and mutual consultation of the parties hereto, shall be settled by arbitration to be conducted in Hyderabad in accordance with the provisions of the Arbitration and Conciliation Act, 1996. All proceedings in any such arbitration shall be conducted in English. The arbitration award shall be final and binding on all the parties.
Whereas the dispute resolution Clause in lease deed dated 09.11.2018 is as under:
Clause 19: All disputes, controversies, claims and differences arising out of or in relation to this agreement or any breach hereof except those which cannot be settled by arbitration through correspondence and mutual consultation of the parties hereto, shall be settled by arbitration to be conducted in Hyderabad in accordance with the provisions of the Arbitration and Conciliation Act, 1996. All proceedings in any such arbitration shall be conducted in English. The arbitration award shall be final and binding on all the parties.
13. The disputes in the present applications arise from the two lease deeds dated 10.11.2017 and 09.11.2018. Further from the language used in the MOU(s) both dated 05.05.2021, it is 6 understood that it was an interim arrangement to facilitate the respondents to clear the arrears of rents arising from the lease deeds. Thus, in view of the ratio laid down by the Supreme Court in Chloro Controls (I) P. Ltd. Vs. Severn Trent Water Purification Inc. and Ors1, any contravention from MOU(s) dated 05.05.2021 would also be governed by the dispute resolution Clauses 25 and 19 in the lease deeds dated 10.11.2017 and 09.11.2018 respectively.
14. Having observed that there is a valid arbitration agreement between the parties, it is relevant to note that the role of High Court under Section 11 of the Arbitration and Conciliation Act, 1996 is extremely limited. The Court after having seen that prima facie an arbitration agreement exists, is required to refer the disputes to arbitration unless a claim is manifestly deadwood. The Supreme Court in Vidya Drolia v. Durga Trading Corpn2, held as under:
244. Before we part, the conclusions reached, with respect to Question 1, are:1
(2013)1SCC641 2 (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549 7 244.1. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference.
244.2. Usually, subject-matter arbitrability cannot be decided at the stage of Section 8 or 11 of the Act, unless it is a clear case of deadwood.
244.3. The court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.
244.4. The court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above i.e. "when in doubt, do refer".
244.5. The scope of the court to examine the prima facie validity of an arbitration agreement includes only:
244.5.1. Whether the arbitration agreement was in writing? or 244.5.2. Whether the arbitration agreement was contained in exchange of letters, telecommunication, etc.?
244.5.3. Whether the core contractual ingredients qua the arbitration agreement were fulfilled?
244.5.4. On rare occasions, whether the subject-matter of dispute is arbitrable?
15. In paragraph 96 of the above judgment, the Supreme Court had also held that once a dispute is not ex-facie deadwood, all further questions pertaining to non-arbitrability have to be decided by the Arbitral Tribunal.
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16. In the facts at hand, as the disputes have arisen in and around March, 2020 onwards, leading to issuance of notice(s) dated 25.09.2020 terminating the lease, and the present applications having been preferred on 05.02.2022, the disputes cannot be treated as deadwood as they are clearly within limitation as per Article 137 of the Limitation Act, 1963. So far as the admissibility of the claim is concerned, the respondents despite having requested waiver of rent vide letter dated 10.04.2020 claiming that a Force Majeure event occurred, had subsequently entered into two MOU(s) both dated 05.05.2021 to clear rental dues pertaining to the disputed period. Thus, execution of the MOU(s) prima facie shows that dispute is surviving.
17. The Supreme Court in Bharat Sanchar Nigam Ltd. and Ors. Vs. Nortel Networks India Pvt. Ltd3, while dealing with the issue of a claim being deadwood had held as under:
37...It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is non-arbitrable, that the court may decline to make the reference.
However, if there is even the slightest doubt, the Rule is to refer the 3 (2021) 5 SCC 738 9 disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal.
18. In the light of the settled position of law, any further questions pertaining to the impossibility of performance, frustration of contract, application of Force Majeure principle would have to be dealt with by the Arbitral Tribunal. Thus, the defence taken by the respondents as to non-arbitrability of disputes cannot be accepted at this stage and is liable to be rejected and I do so.
19. Accordingly, the present arbitration applications are allowed; the disputes between the applicants and the respondents are hereby referred to arbitration. Since, the parties in the present applications are common, and the subject properties being adjacent have a bearing on each other and as the parties are also agreeable for a common arbitration for both the applications, this Court hereby appoints Sri. Justice. Challa Kondanda Ram, Former Judge of the Telangana High Court, Plot No. 68, Road No. 71, Phase III, Jubilee Hills, Hyderabad - 34, as sole arbitrator to resolve the disputes between the applicants and the respondents. The parties are at liberty to raise all relevant disputes and pleas available to them in law, before the arbitral Tribunal. The learned arbitrator shall make 10 necessary disclosure in terms of the provisions of the Act and shall be entitled to charge fees as per Schedule IV of the Arbitration and Conciliation Act, 1996.
20. Pending miscellaneous petitions if any shall stand closed. No Costs.
___________________ T. VINOD KUMAR, J Date: 17.03.2023.
VSV/MRKR 11 THE HON'BLE SRI JUSTICE T. VINOD KUMAR ARBITRATION APPLICATION No.27 and 32 of 2022 17.03.2023 VSV/MRKR 12