Delhi High Court

M/S Anjuman Taraqqi Urdu (Hind) vs M/S Vardhman Yarns & Threads Ltd. on 2 February, 2012

Author: Reva Khetrapal

*    IN THE HIGH COURT OF DELHI AT NEW DELHI


+      IA NO. 10702/2011 IN CS(OS) NO. 913/2011


M/S ANJUMAN TARAQQI URDU (HIND)          ..... Plaintiff
                 Through: Mr. A.K. Singla, Sr. Advocate
                          with Mr. J.K. Sharma, Adv.

                     versus


M/S VARDHMAN YARNS & THREADS LTD. ..... Respondent
                Through: Mr.Dalip Kumar Sharma, Adv.

%                             Date of Decision : February 02, 2012

CORAM:
HON'BLE MS. JUSTICE REVA KHETRAPAL

                              JUDGMENT

: REVA KHETRAPAL, J.

1. The defendant in the aforementioned suit has filed an

application under Section 8 of the Arbitration and Conciliation Act,

1996 for reference of the disputes between the parties to arbitration.

2. Notice of the application was issued to the learned counsel for

the plaintiff, who has chosen not to file a reply and to make oral

submissions opposing the application.

3. The factual background in which the application is filed is as

follows.

4. The plaintiff, which is a society registered under the Societies

Registration Act, has filed the present suit against the defendant for

recovery of possession of the premises known as „Urdu Ghar‟, 212,

Deen Dayal Upadhyay Marg, New Delhi consisting of the entire first

floor measuring 3505 Sq. Ft. inclusive of balcony measuring 682 Sq.

Ft. and mezzanine floor measuring 1300 Sq. Ft. totalling 5487 Sq. Ft.,

let out to the defendant company-M/s Vardhman Yarns & Threads

Limited (then incorporated as M/s Mahavir Spinning Mills Limited)

on a monthly rent of Rs.1,23,086/- (Rupees one lakh twenty three

thousand and eighty six only) inclusive of maintenance charges.

Apart from the recovery of possession of the aforesaid immovable

property, the plaintiff also claims recovery of damages by way of

mesne profit for the pre-suit period as well as the post-suit period.

5. The lease-deed executed between the parties was signed on

09.06.2005 containing therein the record of terms and conditions

agreed upon between the parties. The lease period was for a term of

five years as stated in the lease-deed to be reckoned from 19.07.2004,

i.e. upto 18.07.2009. The aforesaid lease came to an end with the

efflux of the period given thereunder, that is, with effect from

18.07.2009, and from that date the occupation of premises by the

defendant company is on a month to month basis according to the

English calendar month, since no renewed lease-deed is registered

between the parties. The plaintiff by issue of notice dated 05.02.2011

terminated the defendant‟s tenancy under Section 106 of the Transfer

of Property Act. The defendant sent reply dated 25.02.2011 stating

therein that vide letter dated 01.06.2009, the defendant had made a

written request to the plaintiff to exercise its option with an increase

of 15% in the rent for a further period of five years, which was

confirmed by the plaintiff on 04.06.09, who has since been receiving

and accepting the revised rent. The defendant, in its reply, further

alleged that the lease could not be determined before the expiry of the

lease period, which was to expire on 18.07.2014. However, before

legal proceedings pursuant to the said notice could be instituted by the

plaintiff, the defendant obtained receipt No. 656 dated 07.03.2011

from the plaintiff‟s bank account, wherein the receipt of defendant‟s

cheque No. 715338/715339 dated 01.03.2011 totalling Rs.1,23,086/-

(Rupees one lakh twenty three thousand and eighty six only) is

acknowledged. According to the plaintiff, the cheque described in

the said receipt was accidently deposited for encashment by the

plaintiff‟s officials and consequently payment thereunder was

received.

6. In the above circumstances, the plaintiff issued fresh notice of

termination of tenancy under Section 106 of the Transfer of Property

Act dated 15.03.2011 intimating the defendant that after expiry of 15

days from the receipt of the notice, occupation of premises by the

defendant will be unauthorized, and that in case defendant fails to

hand over vacant peaceful possession of the premises within the

aforesaid period, the plaintiff would institute proceedings for recovery

of possession holding the defendant liable for damages/compensation

calculated at the rate of Rs.100/- per sq.ft. per day. It is, thus, the case

of the plaintiff that with the notice of termination dated 15.03.2011,

the defendant has no right to hold possession of the property and the

occupation of the defendant in respect of the suit premises is illegal

and unauthorized. The defendant in its reply dated 30.03.2011

reiterated the contents of its reply dated 25.02.2011.

7. As already indicated above, the defendant has filed the present

application for dismissal of the suit in the light of the existence of an

arbitration clause in the lease deed dated 09.06.2005 executed

between the parties, being Clause (c) whereby the parties have

mutually agreed as under:-

"That all disputes arising out of or pertaining to this lese (sic.) shall be settled by negotiations. If negotiations do not succeed the dispute shall be referable to arbitration as per the provisions of Arbitration Act, 1940 or any statutory modification thereof, for the time being in force."

8. Mr. Dalip Kumar Sharma on behalf of the defendant contends

that the dispute in the present suit is liable to be referred to arbitration

in view of the aforesaid specific clause for arbitration contained in the

registered lease deed dated 09.06.2005. He relies upon a large

number of judicial pronouncements to further contend that the

provisions of Section 8 of the Arbitration and Conciliation Act, 1996

are pre-emptory in nature and where the provisions of the said Section

become fully applicable, the Court has no other option but to refer the

parties to arbitration in terms thereof. In particular, he referred to the

decisions rendered in M/s Architectural Innovations Vs. Rajasthan

Co-op. Group Housing Society, 77 (1999) Delhi Law Times 403; P.

Anand Gajapathi Raju and others Vs. P.V.G. Raju (died) and

others, AIR 2000 Supreme Court 1886; and Agri Gold Exims Ltd.

Vs. Sri Lakshmi Knits & Wovens and Others, (2007) 3 Supreme

Court Cases 686.

9. Mr. Sharma further contends, relying upon the decision of the

Supreme Court in Hindustan Petroleum Corporation Limited Vs.

M/s. Pinkcity Midway Petroleums, AIR 2003 Supreme Court 2881,

that it is clear from the language of the Section 16 of the Act that the

Civil Court should not embark upon an inquiry in regard to the

applicability of the arbitration clause to the facts of the case, in that

the said Section of the Arbitration and Conciliation Act empowers the

Arbitral Tribunal to rule "on any objections with respect to the

existence or validity of the arbitration agreement".

10. Mr. A.K. Singla, the learned senior counsel for the plaintiff, to

rebut the contentions of Mr. Sharma, relies upon the decision

rendered by the Supreme Court in M/s SMS Tea Estates Pvt. Ltd. Vs.

M/s Chandmari Tea Co. Pvt. Ltd., 2011 (7) SCALE 747, and in

particular on the portion extracted herein below:-

"Having regard to the limited scope of the said arbitration agreement (restricting it to disputes in relation to or in any manner touching upon the lease deed), the arbitrator will have no jurisdiction to decide any dispute which does not relate to the lease deed."

11. Mr. Singla contends that the application filed by the defendant

for reference of the dispute to arbitration is liable to be dismissed as

clause 35 of the lease deed in the said case and the arbitration clause

in the present case are in identical terms.

12. The aforesaid reliance placed by Mr. Singla upon the judgment

of the Supreme Court in the case of M/s SMS Tea Estates Pvt. Ltd.

(Supra) is altogether misplaced. In the said case, the question which

arose for consideration of the Supreme Court was whether the

Arbitration Agreement contained in an unregistered instrument,

which is not duly stamped, is valid and enforceable. It was the

contention of the respondents in the said case that the lease deed

executed between the parties was unenforceable having regard to

Section 107 of Transfer of Property Act, 1882 and Section 17 &

Section 49 of the Registration Act, 1908; that the said lease-deed was

not duly stamped and was, therefore, invalid, unenforceable and not

binding, having regard to the Section 35 of the Indian Stamp Act,

1899; that clause 35 providing for arbitration, being part of the said

lease deed, was also invalid and unenforceable.

13. As regards the non-registration of lease deed, which contained

the Arbitration Agreement, the Supreme Court held as follows:-

"An arbitration agreement does not require registration under the Registration Act. Even if it is found as one of the clauses in a contract or instrument, it is an independent agreement to refer the disputes to arbitration, which is independent of the main contract or instrument. Therefore having regard to the proviso to section 49 of Registration Act read with section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration".

14. Further, examining the provisions of Section 33 and Section 35

of the Stamp Act, the Supreme Court in paragraph 12 of its judgment

summed up the position as follows:-

"(i) The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registrable.

(ii) If the document is found to be not duly stamped, Section 35 of Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then

proceed to impound the document under Section 33 of the Stamp Act and follow the procedure under Section 35 and 38 of the Stamp Act.

(iii) If the document is found to be duly stamped, or if the deficit stamp duty and penalty is paid, either before the Court or before the Collector (as contemplated in Section 35 or 40 of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.

(iv) Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is found to be not compulsorily registrable, the court can act upon the arbitration agreement, without any impediment.

(v) If the document is not registered, but is compulsorily registrable, having regard to section 16(1)(a) of the Act, the court can de-link the arbitration agreement from the main document, as an agreement independent of the other terms of the document, even if the document itself cannot in any way affect the property or cannot be received as evidence of any transaction affecting such property. The only exception is where the respondent in the application demonstrates that the arbitration agreement is also void and unenforceable, as pointed out in para 8 above. If the respondent raises any objection that the arbitration agreement was invalid, the court will consider the said objection before proceeding to appoint an arbitrator.

(vi) Where the document is compulsorily registrable, but is not registered, but the arbitration agreement is valid and separable, what is required to be borne in mind is that the Arbitrator appointed in such a matter

cannot rely upon the unregistered instrument except for two purposes, that is (a) as evidence of contract in a claim for specific performance and (b) as evidence of any collateral transaction which does not require registration."

15. It was, thus, in the context of an unregistered and unstamped

lease deed that the Supreme Court held that the arbitrator will have no

jurisdiction to decide any dispute which does not relate to the lease-

deed. This is further elaborated upon by the Court in paragraph 13 of

its judgment, which is extracted herein below:-

"13. Where a lease deed is for a term of thirty years and is unregistered, the terms of such a deed cannot be relied upon to claim or enforce any right under or in respect of such lease. It can be relied upon for the limited purposes of showing that the possession of the lessee is lawful possession or as evidence of some collateral transaction. Even if an arbitrator is appointed, he cannot rely upon or enforce any term of the unregistered lease deed. Where the arbitration agreement is not wide and does not provide for arbitration in regard to all and whatsoever disputes, but provides only for settlement of disputes and differences arising in relation to the lease deed, the arbitration clause though available in theory is of little practical assistance, as it cannot be used for deciding any dispute or difference with reference to the unregistered deed."

16. The judgment in the case of M/s SMS Tea Estates Pvt. Ltd.

(Supra) is, therefore, of no avail to the plaintiff.

17. The lease deed in the instant case is duly registered and

stamped and the arbitration clause contained therein must, therefore,

be given full play. It is trite that in a case where there exists an

arbitration agreement, the Court is under obligation to refer the parties

to arbitration in terms of the Arbitration Agreement. The Arbitration

Agreement in the instant case covers all the disputes between the

parties in the suit and satisfies the requirements of Section 7 of the

Act. Thus, the provisions of Section 8 of the Act become fully

applicable to the facts of the present case and this Court has no other

option but to refer the parties to arbitration. I, therefore, consider that