M/S General Electric ... vs M/S U.C. Jain Huf & Ors.
2009 Latest Caselaw 655 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                       OMP 163/2005

%26.02.2009                        Date of decision: 26.02.2009

M/S GENERAL ELECTRIC
INTERNATIONAL INC.                                ....... Petitioner
                       Through: Mr. Abhinav Vasisht & Ms. Harsita
                                Priyanka, Advocates.

                               Versus

M/S U.C. JAIN HUF & Ors.                       .......   Respondents
                        Through:   Mr. B.B.Gupta, Advocate for the
                                   respondents No. 1to3 & 5.
                                   Mr. S.K. Chandwani & Mr. M.S.
                                   Rahman,     Advocates     for the
                                   respondents No.4,6&7.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may Yes
      be allowed to see the judgment?

2.    To be referred to the reporter or not?             Yes

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


RAJIV SAHAI ENDLAW, J.

1. Objections under Section 34 of the Arbitration Act, 1996 with

respect to the award dated 8th February, 2005 of Shri. H.C. Gupta,

Member (Retd.), M.R.T.P.C. are for consideration.

2. The disputes between the parties arose out of several

agreements entered into by the petitioner with different respondents

all in relation to letting out of the ground floor of House No.13,

Palam Marg, Vasant Vihar, New Delhi - 110057. The lease

agreement and the security deposit agreement are between the

petitioner and the respondent No.1 M/s U.C. Jain (HUF) of which the

respondent No.2 Mr. U.C. Jain is the Karta. The Generator Set

maintenance agreement is between the petitioner and the

respondent No.3 Smt. Rakhee Jain. The AC maintenance agreement

is between the petitioner and the respondent No.4 Mr. Ashish Jain.

The other maintenance agreement is between the petitioner and the

respondent No.5 Ms. Raj Rani Jain and the renovation agreement is

between the petitioner and the respondent No.6 M/s Ease

Consultants (P) Ltd. Each of the said agreements contained a clause

of arbitration of disputes or differences arising out of or in

connection with the agreement to be referred to two arbitrators one

each to be appointed by each party and for the arbitration to be

subject to the Arbitration and Conciliation Act, 1996 and the rules of

Arbitration of Indian Council of Arbitration.

3. However, notwithstanding the arbitration clause, disputes and

differences having arisen between the parties the petitioner

instituted suit No.1903/1998 in this court against all the respondents

for mandatory injunction directing the respondents to assume

possession of the property and claiming recovery of Rs.32,63,100/-

from the respondents. Though certain pleadings/documents of that

suit were also filed in the present proceedings but during the

hearing, with the consent of the parties, the file of the suit was also

called for. It was the case of the petitioner in that suit that as

against the promised date of delivery of possession of 1st April, 1997

it was given possession after inordinate delay only on 1st July, 1997;

that after possession it was found that the premises and the

amenities and services therein were not as assured, promised and

agreed; that the petitioner therefore terminated the lease agreement

and called upon the respondents to accept possession and refund the

security deposit placed by the petitioner with each of the

respondents under different agreements; that the respondents had

however illegally refused to do so. The respondents also upon

receipt of summons of the suit inspite of arbitration clause in the

agreements did not apply under Section 8 of the Arbitration Act,

1996 and filed their written statement. During the pendency of the

suit on 23rd September, 1998 an interim settlement was arrived at

between the parties as per which a sum of Rs.10 lacs was agreed to

be paid to the petitioner and a court commissioner was appointed for

inspecting the property, taking photographs with regard to the

condition and for assessing the quantum of damages, if any; it was

further agreed that the keys of the property shall be handed by the

petitioner to the court commissioner and the court commissioner

after looking into the question of electricity bills shall submit the

report. The commission was executed on 15th October, 1998 and the

commissioner on the same day also delivered actual possession of

the premises, amenities etc. therein to the respondents. Some of the

respondents also preferred objections to the report of the court

commissioner. On the basis of the pleadings of the parties and even

though no counter claim had been preferred by the respondents, on

31st July, 2000, the following issues were framed:-

1. Whether the plaint does not disclose any cause of action?

2. Whether the suit is bad for mis-joinder of parties and causes of action?

3. Whether the suit has not been properly valued for purposes of court fee and jurisdiction?

4. Whether the lease agreement was terminated by notice dated 12th December, 1997/9th January, 1998? If so, to what effect?

5. Whether the plaintiff is not liable to pay rent and maintenance charges from 1st December, 1997 to 15th October, 1998? If so, to what effect?

6. Whether there was any damage to the property at the time it was vacated by the plaintiff?

7. If issue No.6 is proved in the affirmative, whether the defendant is entitled to claim compensation/damages for this loss? If so, to what extent?

8. To what amount, if any, is the plaintiff entitled from the defendants?

9. Whether the plaintiff is entitled to interest? If so, at what rate and for what period?

10. Relief.

And the trial was ordered. On 20th May, 2002 it was noted in

the order sheet of that suit that the counsel for the parties on

instructions were now agreed that in view of the arbitration

agreement between the parties, the disputes/differences "subject

matter of the present suit" be referred for adjudication by a sole

arbitrator. Accordingly, Mr. H.C. Gupta aforesaid was appointed as

the sole arbitrator "to resolve the disputes/difference subject matter

of the present suit between the parties". It was also noted in the

said order that after the institution of the suit, a sum of Rs.10 lac had

already been paid to the petitioner and it was ordered that after

adjusting the said amount, the total claim of the petitioner as it so

stood reduced shall be treated as the petitioner's claim in the suit.

4. It may be noted that after the institution of the suit aforesaid

by the petitioner, the respondent No.1M/s U.C. Jain (HUF) also

instituted suit No.1923/2008 in this court for recovery of possession

of the premises from the petitioner. Along with the said suit an

application under Order2 Rule 2 of the CPC was also filed to sue

separately the petitioner for recovery of the arrears of rent and other

dues. However, after the possession of the premises was handed

over on 15th October, 1998 by the court commissioner appointed in

the other suit, this suit was on 1st February, 1999 dismissed as

infructuous. The file of this suit also was called during the hearing of

the objections with the consent of the counsel for the parties.

5. The petitioner preferred its claims before the Arbitrator of

Rs.19,50,000/-, after adjustment of Rs.10 lacs received as aforesaid

during the pendency of the suit and Rs.30,000/- towards electricity

charges. The respondents filed their statement of defence and

counter claim. The petitioner herein filed their response to the

counter claim of the respondents. The parties also filed affidavit by

way of evidence.

6. The arbitrator has vide award aforesaid awarded a sum of

Rs.3,92,760/- to the respondents No.1to3 & 5 against the petitioner

along with interest at 12% per annum from 15th October, 1998 till

the date of payment and awarded a sum of Rs.82,500/- to the

petitioner against the respondent No.4 Mr. Ashish Jain together with

interest on 12% per annum from 15th October, 1998 till the date of

payment. No objections have been preferred by the respondent No.4

Mr. Ashish Jain to the award in so far as against him. Objections

have been preferred by the petitioner only to the award against it for

sum of Rs.3,92,760/- with interest and for dismissal of its claims.

7. According to the petitioner though it had paid rent and other

charges under the various agreements w.e.f. 1st April, 1997 from

which date it was to be put on possession of the premises but the

possession was delivered to the petitioner on 1st July, 1997 only. The

petitioner had, therefore, claimed refund of the rent and other

charges paid for the said period. The arbitrator has found the claim

of the petitioner of having been put into possession on 1st July, 1997

to be fallacious. Though in the pleadings objection has been raised

to the said finding also, but the counsel for the petitioner during the

course of hearing fairly conceded that such objection was outside the

ambit of Section 34 of the Arbitration Act.

8. According to the petitioner, it had given notice of termination

of tenancy on 12th December, 1997 or in any case on 9th January,

1998 - which was acknowledged by the respondents; its liability for

rent and other charges ceased on that date even though the

possession was delivered by the court commissioner on 15th October,

1998. Alternatively it is contended that the petitioner at best is

liable for rent and other charges till 31st March, 1998 only, on which

date respondents had agreed to receive possession. The arbitrator

however found that though the petitioner had offered possession of

the premises and other amenities, such offer was conditional on

payment of various security deposits. The arbitrator further held that

the respondents were also ready to take possession and refund

security deposits, subject to deduction of rental dues, damages,

electricity charges therefrom and with respect whereto no

settlement could be arrived at between the parties. The Arbitrator,

therefore, held the petitioner liable for rent and other charges till

15th October, 1998. Axiomatically, the arbitrator after adjusting the

balance security deposit in the rent and other charges till 15th

October, 1998 found the aforesaid sum of Rs.3,92,760/- to be due

from the petitioner, inclusive of Rs. 20,000/- towards value of

damages to the premises and Rs. 32,760/- towards electricity

charges. The arbitrator also negatived the claim of the petitioner of

Rs. 9,60,000/- paid under the renovation agreement holding that it

was a one time payment and the petitioner has not led any evidence

that the renovation was not carried out.

9. The counsel for the petitioner besides challenging the

aforesaid findings of the arbitrator has also argued that only the

claims of the petitioner had been referred to arbitration. He has

urged that the arbitrator ought not to have considered the counter

claims of the respondents. He has further urged that the counter

claims of the respondents even if to be considered were on the date

of institution thereof barred by time. He has further urged that

though the issue had been framed in the suit instituted by the

petitioner of the claims of the respondents but the respondents had

neither made any counter-claim nor paid any court fee thereon. He

has argued that when refund of security deposit is sued for, the party

denying the liability for refund is required to make a counter claim

with respect to its claims and unless so makes a counter claim is not

entitled to oppose the refund of security deposit.

10. Under Section 34 of the Arbitration Act, the court is

empowered to set aside an award if the same deals with the disputes

not contemplated by and not falling within the terms of submission

to arbitration or if it contains decision on matters beyond the scope

of submission to the arbitration. Thus, if the contention of the

petitioner that the counter claims of the respondents were not

referred to arbitration is to be found true, the award in so far as

allowing the said counter claims would certainly be liable to be set

aside.

11. As noticed above, this court vide Order dated 20th May, 1992

referred the disputes/differences subject matter of that suit to

arbitration. The question which arises is as to what were the

disputes and differences subject matter of that suit.

12. I will first deal with the contention of the counsel for the

petitioner that in a suit for refund of security deposit, the defendant;

averring that the security deposit is liable to adjustment, has to

prefer a counter claim to that effect and unless does so, a decree for

refund of security deposit is to follow without adjudication of the

claims for adjustments therefrom. It is essential to understand the

nature and character of a security deposit. The security deposit is

generally meant to secure the landlord against various defaults of

the tenant at the time of final determination of the lease. Such

default may include damage to the property, arrears of rent, arrears

on account of electricity or water charges, telephone bills etc. It was

so held by this court in Parmanand Vs. Vimal Chand Jain 1995 III

AD (Delhi) 547 that the security deposit is not liable to be adjusted at

interim stages towards rent unless there is an agreement to the

contrary between the parties. Similarly in Uberoi Sons Machines

Ltd. Vs. Samtel Colour Ltd. 105 (2003) DLT 383 this court held

that security is paid to the landlord for the purpose of guaranteeing

that no damage is done by the tenant nor any fixture and fittings are

removed and the landlord is entitled to use the security for repairing

the damages done by the tenant. In the present case, the security

deposit agreement between the parties also provided of mutually

agreed reasonable deduction therefrom of damage or pending dues if

any on account of lessee's occupation of the demised premises.

Once it is found that the very purpose of security deposit is to secure

to the landlord the value of any outstandings from the tenant, it

would be inherently, contradictory to hold that though the landlord is

holding the said security deposit but in a suit by the tenant for

refund thereof the landlord is required to maintain a counter claim

(and which is same as a suit) for the adjustment of claims and that

without maintaining the said counter claims, is not entitled to the

relief of adjustments. The occasion for the tenant instituting a

suit/claim for refund of security deposit would arise only when the

tenant contends that there is nothing to be adjusted from the same

and the landlord contends otherwise. The question for adjudication

before the court in such case would be whether any adjustment is to

be done from the security deposit or the same is refundable in toto to

the tenant. For the same adjudication, the landlord cannot be asked

to file a counter claim and pay court fee thereon. The said counter

claim would also adjudicate an adjudication as to whether the

landlord is entitled to claim adjustments or not. The law provides for

court fee to be paid on adjustments, counter claim, set off, when the

claim of the opposite party is admitted and is sought to be

adjusted/set off against some claim. In such a situation, the

adjudication involved qua the set off or adjustment is different from

the claimed amount. It is for this reason that a separate set of court

fee is required to be paid thereon. However, where as in the case of

security deposit, the question of adjudication is whether adjustment

permitted to be made, is to be made or not out of the security

deposit no court fee is required to be paid thereon. The said

contention of the counsel for the petitioner does not find favour with

me.

13. Thus, even in the absence of a counter claim of the

respondents the arbitrator while adjudicating the claim of the

petitioner for refund of security deposit was entitled to go into the

question of adjustments, to which the respondents were entitled to

therefrom.

14. However, since the arbitrator besides merely allowing

adjustments from the claim for security deposit has also found claims

over and above thereto of the respondents against the petitioner and

which have been allowed to the extent of Rs. 3,92,760/- herein

above, it is also important to adjudicate whether the findings of the

arbitrator of the counter claims also having been referred calls for

any interference under Section 34 or not.

15. At the outset, it may be noted that when the respondents

preferred their counter claims no application under Section 16 of the

Act was made by the petitioner. The petitioner though filed reply to

the counter claim of the respondents did not even challenge therein

that the said counter claims had not been referred to arbitration. It

was only while addressing arguments before the arbitrator that the

said plea was taken by the petitioner.

16. It has been held by the Division Bench of this court in S.N.

Malhotra & Sons Vs. Airports Authority of India (2008) IV AD

(Delhi) 424 that without following the procedure under Section 16 of

the Arbitration Act, the plea under Section 34 (2) (a) (4) of the Act

cannot be taken for the first time. Admittedly no plea under Section

16 of the Act was taken. The said objection of the petitioner is liable

to be dismissed on this ground alone.

17. Besides aforesaid, even otherwise I am unable to find fault

with the award to the effect that the counter claims were also

referred to arbitration.

18. The contention of the counsel for the petitioner is that since no

counter claim had been preferred by the respondents in the suit in

which the reference was made, the order of this court to the effect

that the dispute subject matter of the suit were being referred to

arbitration could include only the claims of the petitioner. The

argument of the petitioner would have been correct had the issues

No. 5, 6 and 7 not been framed. The said issues clearly are to the

effect as to whether the respondents are entitled to amounts

claimed. The contention of the petitioner is that the said issues were

erroneously framed. However, the fact remains that they were

framed in the presence of the counsel for the petitioner and without

any objection whatsoever from the petitioner. The petitioner having

allowed the said issues to have been framed and to remain on record

till the date the disputes subject matter of suit were referred to

arbitration, the said disputes have to necessarily relate to the issues

framed in the suit and which issues as aforesaid include the counter

claims of the respondents also. This court made the order of

reference in relation to the issues. If according to the petitioner any

of the issues was wrongly framed, the petitioner should have got the

same clarified. The petitioner by allowing the said issues to stand till

the date of reference and in fact till the date of award has led not

only this court while making the order of reference but also the

arbitrator as well as the respondents to believe that their claims on

which issues had been framed were also being referred to arbitration

and were to be adjudicated by the arbitrator only. Had the

petitioner raised the objection at that time, the respondents would

have stood warned and would have either sought clarification from

this court or would not have agreed to arbitration or would have

sought a specific direction of reference of its counter claims also. It

may be noted, the respondents in suit filed by them had filed

application reserving right to sue for their counter claims. Had the

issues aforesaid not been framed or had objection been taken by the

petitioner, the respondents would have separately sued.

19. I had, during the course of hearing, put to the counsel for the

petitioner as to what would have been the effect had instead of being

referred to arbitration, the suit proceeded. In that case also at the

stage of final arguments, what course would have been adopted by

the court, whether to refuse to answer these issues because no

counter claim had been preferred or to allow the respondents to pay

court fee thereon. The counsel for the petitioner naturally was non-

committal. In my view, had the trial proceeded on issues, after

several years it would have been unjust to refuse to answer the

issues on counter claims of respondents without giving an

opportunity to the respondents to pay the court fees.

20. A perusal of the written statement of the respondents in the

suit would show that though the respondents made their claims but

did not formally make a counter claim and axiomatically the question

of valuing the same for purpose of court fee did not arise. However,

the manner in which the said written statement was understood by

all concerned including the petitioner was that the respondents

besides raising the pleas of adjustment of the entire security deposit,

were also claiming other amounts from the petitioner. In my opinion,

it is too late in the day for the petitioner to poke holes in the issues

framed in the suit and which were referred to arbitration and no

illegality can be found with the finding of the arbitrator of the

counter claims also having been referred to him.

21. There is yet another aspect of the matter. The respondent

raised the counter claims before the arbitrator on the premise that

the same were arbitrable. The petitioner replied to the said counter

claims also on the premises that the same were arbitrable. In my

opinion an arbitration agreement within the meaning of Section 7 (4)

(c) of the Act came into being, even if there had been no reference of

the said counter claims to arbitration.

22. That brings me to the question of limitation. It is the

contention of the counsel for the petitioner that since counter claims

were not made in the suit, the date of institution thereof should be

the date of filing counter claim before the arbitrator and which was

beyond three years from date of vacation. However, the said

question of limitation would arise only if the counter claims are

found to have been not referred to arbitration by order of this court.

Since I have held that the counter claims were referred to

arbitration, I do not find any merit in the plea of the counter claims

being barred by time. Even otherwise the respondents by raising the

said disputes and by pressing and having framed issues thereon had

raised the same within the meaning of Section 21 of the Act and for

this reason also it cannot be said that the counter claim was barred

by time or that the finding of the arbitrator thereon is contrary to the

policy of India. Moreover, no bar of limitation was pleaded. It was

argued for the first time during arguments before arbitrator.

Limitation is a mixed question of law and facts and no fault can be

found in the reasoning of the arbitrator and the court can in absence

of pleading refuse to entertain the same.

23. That brings me to the awards on merits.

24. The findings of the arbitrator of there being damage to

premises of value of Rs. 20,000/-, of there being electricity arrears of

Rs. 32,760/- and of the petitioner having led no evidence to be

entitled to refund of Rs. 9,60,000/- are pure findings of facts and

non-interfereable under Section 34. The counsel for the petitioner

has rightly raised no argument with respect thereto.

25. The arbitrator has found that though the petitioner had offered

the possession to the respondents but the said offer was conditional

and therefore the liability of the petitioner for rent and other charges

did not cease till the date of actual delivery of possession. Is such

finding such which is liable to be interfered with under Section 34?

In my opinion not. It cannot be argued that the said finding is

contrary to the policy of India which as per the dicta in ONGC Vs.

SAW Pipes Ltd. (2003) 5 SCC 705 has been held to be the law of

India.

26. I may notice that while this court in Uberoi Sons Machines

Ltd. (Supra) has held that a tenant could not have retained

possession of the premises without paying the rent on account of

non-refund of security deposit by the landlord and that the tenant in

such case has an independent remedy to recover the security deposit

and if retains possession of the premises on the ground of non-refund

of security deposit, would remain liable for payment of rent and

other charges with respect to the premises till the date of

possession, another single judge of this court in ICRA Ltd. Vs.

Associated Journals Ltd. 2007 VII AD (Delhi) 437 has held that if

the defendant/landlord does not take possession in spite of offer of

the tenant, the tenant cannot be liable for rent and other charges

thereafter. To the same effect is another judgment of a single judge

of this court in Onida Finance Ltd. Vs. Ms. Malini Khanna 2002

(III) AD (Delhi) 231. Thus, it would be seen that whether possession

has been offered unequivocally or not is a question of fact. In the

present case, the arbitrator has returned a finding that the offer of

possession of the petitioner was not unequivocal and not

unconditional and therefore the petitioner continued to be liable for

rent. Such factual findings of the arbitrator is outside the purview

of interference under Section 34 of the Act.

27. In the present case, the agreement in writing between the

parties entitled the petitioner to retain possession till the refund of

the security deposit. However, a detailed inspection of the security

deposit agreement would show that only mutually agreed

reasonable deduction due to damage or pending dues, if any, were

allowed to be deducted therefrom. It was only on the landlords

default in refunding such mutually agreed amount that the petitioner

was entitled to withhold possession without any liability for rent and

other charges. However, the present was a situation where no

mutual agreement could be arrived at between the parties as to the

deductions. The remedy provided therefor in the agreement itself

was of arbitration. The only reasonable way of interpreting such a

clause in the agreement would be that, if in spite of a mutual

agreement as to the amount of security deposit refundable, the same

is not refunded, the tenant even if withholds possession would not be

liable for any rent. If, however, the parties are not able to arrive at

any mutual settlement, the only remedy open to the tenant is to

surrender possession and to resort to the dispute resolution

mechanism agreed to between the parties. If the tenant in such a

case continues to occupy, he will do so at his own peril of being

found liable to pay rent and other charges, till the date of actual

delivery of possession.

28. A perusal of the correspondence between the parties also

shows that the petitioner had therein agreed to pay rent till 31 st

March, 1998. The respondents were however claiming more

amounts. The respondents vide letter dated 13th February, 1998

showed willingness to take possession and to pay the security

deposit after adjusting the damages, if any. The petitioner however

did not come forward to deliver the possession and ultimately the

respondents got issued the legal notice dated 10th May, 1998,

thereafter. Even in response thereto, the petitioner did not offer

possession and instead filed the suit.

29. The law as to interference in arbitral awards need not be

restated. The arbitrator being a judge chosen by parties to finally

decide the matter, the awards are not to be seen as in appeal.

Findings of arbitrator purely based on appreciation of material on

record cannot be interfered with. The award in this case is not found

contrary to the agreement or the law. No inconsistency is found in

the award.

30. The counsel for the respondent No.4 has urged that this court

should interfere with the rate on interest awarded by the arbitrator.

However, no objections have been preferred; in the absence of the

objections, this court does not have the power to interfere with the

award. Moreover, I find that the arbitrator has allowed against the

respondent No.4 interest at the same rate as allowed against the

petitioner in relation to the counter claims of other respondents. For

this reason also no ground is found to interfere with the rate of

interest.

31. Thus, I do not find any ground to interfere with the award. The

petition under Section 34 is dismissed. However, in the facts and

circumstances of the cases the parties are left to bear their own

costs.

RAJIV SAHAI ENDLAW (JUDGE) February 26, 2009 PP