N. I. I. T. Institute Of ... vs M/S West Star Construction Pvt. ...
2009 Latest Caselaw 1646 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

%                               Date of Decision: April 27, 2009
+                          Arb. P. No. 244/2008

       N. I. I. T. INSTITUTE OF INFORMATION
       TECHNOLOGY                                    .....Petitioner
                     Through Mr. Shankar Vaidialingam with
                               Mr. Bikas Jha, Advts.

                      versus

    M/s WEST STAR CONSTRUCTION PVT.
    LTD. & ANR.                          ..... Respondents

Through: Mr. Vikas Dhawan & Mr. S. P. Das, Advts. for Respondent no. 1 Mr. Manish Srivastava, Adv. for Respondent no. 2.

CORAM:

HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE NEERAJ KISHAN KAUL

1. Whether Reporters of local papers may be allowed to see the judgment? y

2. To be referred to the Reporter or not? y

3. Whether the judgment should be reported in Digest? y

AJIT PRAKASH SHAH, CJ (ORAL) :-

This petition under Section 11(5) of the Arbitration and

Conciliation Act, 1996 ("Act" for short) is filed for appointing a

sole arbitrator to adjudicate upon the disputes between the

petitioner and the respondents. The parties had entered into a

lease agreement dated 27th April, 2006 in respect of a

commercial space of approximately 45000 sq. ft. situated at B-

14, South of IIT (Qutub) Institutional Area, New Delhi and another

agreement dated 27.4.2006 for providing facilities and amenities.

On 20.2.2007, the demised premises were sealed by the MCD,

which put its locks and seals upon the said premises. Even prior

to the sealing of the demised premises, vide a communication

dated 01.02.2007, the respondents terminated the tenancy of the

petitioner.

2. Both lease agreement and amenities agreement contain

arbitration clause and vide notice dated 20.5.2008 the

petitioner called upon the respondents to refer the differences

and disputes to a sole arbitrator. As there has been no

response from the respondents to the notice, the petitioner

has approached this Court under Section 11(5) of the Act.

3. The petition came up for hearing before one of us (A.P.Shah,

CJ) on 2nd April, 2009 when the respondents raised a

preliminary objection to the maintainability of the petition on

the ground that the arbitration clause being part and parcel of

an unregistered lease deed cannot be used for any collateral

purpose. Reliance was placed on the decision of B.D.Ahmed, J

in Chemical Sales Agencies v. Smt. Naraini Newar, 114

(2004) DLT 272. On behalf of the petitioner it was, however,

contended that the view taken by B.D.Ahmed, J is contrary to

the decision in Gaajra International v. Food Corporation

of India, 96 (2002) DLT 581 rendered by A.K.Sikri, J. as well as

the decision of R.C.Jain, J. in Trans World Finance & Real

Estate Co. Pvt. Ltd. v. Union of India 2002 V AD (Delhi)

214. Having regard to the divergent views expressed in this

regard, the matter has been referred to a larger Bench.

4. On behalf of the respondents Mr.Vikas Dhawan contended that

the lease agreement is neither registered nor on proper stamp

papers. Therefore, it cannot be looked into as evidence. In

support of his contention, he relies upon the decision in

Chemical Sales Agencies v. Smt.Naraini Newar (supra) and

also a decision of the Supreme Court in Avinash Kumar

Chauhan v. Vijay Krishna Mishra, I (2009) CLT 157 (SC).

He submits that the decisions rendered in Gaajra International

v. Food Corporation of India (supra) and Trans World Finance &

Real Estate Co. Pvt. Ltd. v. Union of India (supra) are under the

old Arbitration Act whereas Section 7 of the new Arbitration

Act specifically requires a defined legal relationship between

the parties. Therefore, according to him in the absence of any

legal relationship between the parties, disputes cannot be

referred to the arbitration.

5. In reply, Mr.S.Vaidialingam, learned counsel appearing for the

petitioner, contends that the decision in Chemical Sales

Agencies v. Smt. Naraini Newar (supra) does not lay down the

correct law. He submits that the Supreme Court has

consistently held that the unregistered document can be used

as evidence for collateral purpose as provided in proviso to

Section 49 of the Registration Act. According to him,

arbitration agreement being a collateral term is severable from

the contract of lease, which is explicitly recognized in Section

16(1)(b) of the Act. He relies upon the decisions in M/s A.R.C.

Overseas Private Limited v. M/s Bougainvillea Multiples

and Entertainment Centre Pvt. Ltd. and Anr., 2008 (2)

ALJ 663, Anthony v. K. C. Ittoop & Sons, (2000) 6 SCC 394,

Rana Vidya Bhushan v. Ratiram, 1969, U.J. (SC) 21,

National Agricultural Co-op Marketing Federation India

Ltd. v. Gains Trading Ltd., (2007) 5 SCC 692, P. Manohar

Reddy and Bros. v. Maharashtra Krishna Valley

Development Corporation and others (2009) 2 SCC 494,

Burmah Shell Oil v. Khaja Midhat Noor and others (AIR

1988 Supreme Court 1470).

6. In order to appreciate the rival submissions made at the Bar, it

would be necessary for us to refer to two Sections, one being

Section 107 of the Transfer of Property Act, 1882 ("TP Act" for

short) and another being Section 49 of the Registration Act,

1908 ("Registration Act" for short), which, in our view, are

relevant for rendering a proper decision in this matter. Section

107 of the T.P. Act reads as follows:

"107. Leases how made -- A lease of immoveable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made only by a registered instrument. All other leases of immoveable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. Where a lease of immoveable property is made by a registered instrument, such instrument or, where there are more instruments than one, each such instrument shall be executed by both the lessor and the lessee:

Provided that the State Government may from time to time, by notification in the Official Gazette, direct that leases of immoveable property, other than leases from year to year, or for any term exceeding one year, or reserving a yearly rent, or any class of such leases, may be made by unregistered instrument or by oral agreement without delivery of possession."

Section 49 of the Registration Act reads as follows:

"49. Effect of non-registration of documents should be registered.-No document required by section 17 [or by any provision of the Transfer of Property Act, 1882 (4 of 1992)], to be registered shall--

(a) affect any immovable property comprised therein, or

(b) confer any power to adopt, or

(c) be received as evidence of any transaction affecting such property or conferring such power,

unless it has been registered:

[Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882) to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (3 of 1877), or as evidence of any collateral transaction not required to be effected by registered instrument.]"

7. A lease of immovable property is defined in Section 105 of

the Transfer of Property Act. A transfer of right to enjoy a

property in consideration of a price paid or promised to be

rendered periodically or on specified occasions is the basic fabric

for a valid lease. The provision says that such a transfer can be

made expressely or by implication. Once there is such a transfer

of right to enjoy a property a lease stands created. What is

mentioned in the later part of second paragraph of Section 107 of

the T.P. Act is that a lease by oral agreement accompanied by

delivery of possession need not be registered. Therefore, even if

the document is not registered but the lessee was inducted in

possession, it is enough for the purpose of creation of jural

relationship between the parties. In Anthony v. K. C. Ittoop &

Sons (supra) it was held that when a lease is transfer of a right to

enjoy the property and such transfer can be made expressly or by

implication, the mere fact that an unregistered instrument came

into existence would not stand in the way of the court to

determine whether there was in fact a lease otherwise than

through such deed. When it is admitted by both sides that the

appellant was inducted into possession of the building by the

owner thereof and that the appellant was paying monthly rent or

had agreed to pay rent in respect of the building, the legal

character of the appellant's possession has to be attributed to a

jural relationship between the parties. Such a jural relationship

cannot be placed anything different from that of lessor and lessee

falling within the purview of the second para of Section 107 of the

TP Act.

8. In Burmah Shell Oil Distributing v. Khaja Midhat Noor

(supra), the Supreme Court in para 5 has held as under:

"5. In view of the paragraphs of S. 107 of the Act, since the lease was for a period exceeding one year, it could only have been extended by a registered instrument executed by both the lessor and the lessee. In the absence of the registered instrument, the lease shall be deemed to be "lease from month to month". It is clear from the very language of Section 107 of the Act which postulates that a lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent, can be made on a registered instrument. In the absence of registered instrument, it must be a monthly lease. The lessee and the sub-lessee in facts of this case continued to remain in possession of the property on payment of rent as a tenant from month to month. The High Court so found. We are of the opinion that the High Court was right."

9. The decision in Chemical Sales Agencies v. Smt.Naraini

Newar (supra) relied upon by the learned counsel for the

respondents is clearly distinguishable on facts. In that case the

defendants in the written statement had categorically contended

that they did not recognize any such relationship with the plaintiff

inasmuch as defendants did not admit that the plaintiff is a

landlady or the owner in respect of the suit premises. The Court

therefore, has held that when there is no 'defined legal

relationship', there is no question of there being any agreement

amongst them to submit to arbitration all or certain disputes in

respect of such an undefined legal relationship. It was further

observed in para 14 as follows:

"14. There is another aspect of the matter and that is with regard to the nature of the purported lease agreement dated 1.5.1992. Section 107 of the Transfer of Property Act, 1882 clearly provides that a lease of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made only by a registered document. It is further provides that all other leases of immovable property must be either by a registered instrument or by oral agreement accompanied by delivery of possession. Thus, only if there is a registered instrument or there is an oral agreement accompanied by delivery of possession can it be said that a relationship of lessor and lessee is created. In the present case, I find that there is no registered instrument creating any such relationship. The purported lease agreement dated 1.5.1992 is not a registered document. It is not properly stamped and by virtue of Section 49 of the Registration Act, 1908, the said document shall not affect any immovable property nor be received as evidence of any transaction affecting such property. Though, such a document may be received as evidence of a co-lateral transaction not required to be effected by registered instrument.

10. The above observations are sought to be interpreted by the

learned counsel for the respondents to mean that if the lease is

unregistered, it will not create any legal relationship. The

argument has to be rejected in view of the decision in Anthony v.

K.C.Ittoop & Sons and Others (supra). When there is no dispute

that the petitioner was inducted into the possession of the

demised premises and the petitioner was paying monthly rent or

had agreed to pay rent in respect of the demised premises, the

legal character of the petitioner's possession has to be attributed

to a jural relationship and on the fact- situation of the instant

case, would be the same as that of lessor and lessee falling

within the purview of second paragraph of Section 107 of the

Transfer of property Act.

11. Secondly, last para of Section 49 of the Registration Act, as

above, specifically says that that an unregistered document may

be received 'as evidence of any collateral transaction not

required to be effected by registered instrument'. In Rana Vidya

Bhushan v. Ratiram (supra), the Supreme Court held that a

document required by law to be registered, if unregistered, is

inadmissible as evidence of a transaction affecting immovable

property but it may be admitted as evidence of collateral facts, or

for any collateral purpose, that is for any purpose other than that

of creating, declaring, assigning, limiting or extinguishing a right

to immovable property. The proviso clearly empowers the courts

to admit any unregistered document as evidence of collateral

transaction not required to be registered. In Satish Chand

Makhan and others v. Govardhan Das Byas and others AIR

1984 SC 143 and Rai Chand Jain v. Miss Chandra Kanta

Khosla AIR 1991 SC 744, it was held that unregistered lease

executed by both the parties can be looked into for collateral

purpose. In National Agricultural Co-op Marketing Federation

India Ltd. v. Gains Trading Ltd. (supra), the Supreme Court held

that an arbitration clause is a collateral term in the contract,

which relates to resolution of disputes, and not performance.

Even if the performance of the contract comes to an end on

account of repudiation, frustration or breach of contract, the

arbitration agreement would survive for the purpose of resolution

of disputes arising under or in connection with the contract. This

position is statutorily recognized under Section 16(1) of the Act,

which, inter alia, provides that an arbitration clause which forms

part of the contract, has to be treated as an agreement

independent of the other terms of the contract; and a decision

that the contract is null and void shall not entail ipso jure the

invalidity of the arbitration clause.

12. In Firm Ashok Traders and another v. Gurumukh Das

Saluja and others, AIR 2004 SC 1433, it has been categorically

held that in the scheme of the new Act, the arbitration clause is

separable from other clauses of a deed (there it was partnership)

and it constitutes an agreement by itself. Further, in a recent

decision of the Supreme Court in P. Manohar Reddy and Bros.

v. Maharashtra Krishna Valley Development Corporation

and others (2009) 2 SCC 494, the Court observed in paragraphs

27 & 28 as under:

"27. An arbitration clause, as is well known, is a part of the contract. It being a collateral term need not, in all situations, perish with coming to an end of the contract. It may survive. This concept of separability of the arbitration clause is now widely accepted. In line with this thinking, the UNCITRAL Model Law on International Commercial Arbitration incorporates the doctrine of separability in Article 16(1). The Indian law - The Arbitration and Conciliation Act, 1996, which is based on the UNCITRAL Model Law, also explicitly adopts this approach in Section 16 (1)(b), which reads as under:

"16. Competence of Arbitral Tribunal to rule on its jurisdiction. - (1) The Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose, -

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause."

Modern laws on arbitration confirm the concept.

28. The United States Supreme Court in the recent judgment in Buckeye Check Cashing, Inc. v. Cardegna 546 US 460 (2005) acknowledged that the separability rule permits a court "to enforce an arbitration agreement in a

contract that the arbitrator later finds to be void." The Court, referring to its earlier judgments in Prima Paint Corporation v. Flood & Conklin Mfg. Co. 388 U. S. 395 (1966), and Southland Corporation v. Keating 465 U. S. 1 (1984), inter alia, held:

"Prima Paint and Southland answer the question presented here by establishing three propositions. First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract." But this must be distinguished from the situation where the claim itself was to be raised during the subsistence of a contract so as to invoke the arbitration agreement would not apply."

13. Section 7 of the Arbitration Act clearly speaks, what is the

requirement for holding an agreement as an arbitration

agreement, as follows:

"7. Arbitration agreement. - (1) in this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

14. Thus "all or certain disputes" between the parties having a

defined legal relationship whether "contractual or not" can be

submitted to arbitration. In the present case arbitration clause

contained in the contract of lease being a collateral term would

survive irrespective of the fact that the lease deed is not

registered or properly stamped.

15. For the reasons stated above, petition is allowed. Mr.Justice

R.C.Chopra (Retd.) is appointed as the sole Arbitrator to

adjudicate upon the disputes between the parties.

CHIEF JUSTICE

NEERAJ KISHAN KAUL, J APRIL 27, 2009 rb/sb/nm/v