Delhi High Court
Pearl Hospitality & Events Pvt ... vs Oyo Hotels And Homes Pvt Ltd. on 3 November, 2020
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 19th June, 2020
Pronounced on : 3rd November, 2020
+ O.M.P. (I) (COMM) 123/2020 & I.A. 4644/2020
PEARL HOSPITALITY & EVENTS PVT LTD. ...Petitioner
Through: Mr. Ankit Jain, Mr.
Ankur Jain and Mr.
Abhay Pratap Singh,
Advs.
versus
OYO HOTELS AND HOMES PVT. LTD. ... Respondent
Through: Mr. Jeevan Ballav Panda,
Mr. Satish Padhi, Mr.
Gaurav Sharma, Advs.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
% JUDGMENT
1. This petition, preferred by M/s Pearl Hospitality & Events Pvt.
Ltd. under Section 9 of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as "the 1996 Act"), contains the following
prayer clause:
"In the aforesaid facts and circumstances, it is most humbly
and respectfully prayed that this Hon'ble Court may kindly be
pleased to:-
(i) Direct the respondent to immediately handover
the keys of property located at Floor 1 & 2, Plot C,
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Community Centre, Vivek Vihar, Phase-II, Delhi-
110095, admeasuring 15000 sq. ft. approximately
(hereinafter referred to as the 'said property'), to the
petitioner herein;
(ii) Direct the respondent to pay to the petitioner an
amount of Rs. 90,00,000/- (Rupees Ninety Lacs only),
apart from applicable taxes, being the amount payable
by the respondent to the petitioner herein for the
months of December, 2019 till May, 2020, under the
terms of the Management Services Agreement dated
04.09.2019;
(iii) Direct the respondent to give Monetary Security
to the extent of Rs.2,23,50,000/- to secure the amount
to be Awarded, in favour of the petitioner and against
the respondent herein;
(iv) Restrain the Respondent, its Directors,
Shareholders, Employees etc. from transferring ,
alienating or encumbering, in any manner whatsoever,
any of the assets of Respondent Company;
(v) Pass an order of attachment of the Bank
Account of the Respondent No. 1 Company, to be
disclosed by the Respondent No. l Company by way of
an affidavit, being in its special knowledge, for an
amount of Rs.2,53,50,000/-;
(vi) Pass an ex-parte interim order in terms of
prayers (i) - (v) above; and
(vii) Pass any other or further orders which may
deem fit and proper in the facts and circumstances of
the case."
Facts
2. The factual backdrop, in which the afore-extracted prayers have
been made by the petitioner, may be briefly recited thus:
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3. The petitioner had taken the property, located at the first and
second floors, Plot-C, Community Centre, Vivek Vihar, Phase-II,
Delhi-110095 (referred to, for the sake of convenience, as "the subject
property") on lease from Mr. Sanjay Varshney, Mr. Raja Varshney
and Mr. Jeevan Jyoti Kwatra.
4. Pursuant thereto, the petitioner established a banquet hall in the
subject property, under the name and style of 'Navkaar Banquets',
which he claims to have been running since 2012.
5. On 4th September, 2019, the petitioner entered into a
Management Services Agreement (hereinafter referred to as "the
MSA") with the respondent, whereunder the respondent (who was
designated as the "Service Provider" in the MSA), and who claimed to
have been working in the hospitality industry for several years,
undertook to run, operate and manage the aforesaid banquet hall, in
the premises taken on lease by the petitioner (who was designated, in
the MSA, as the "Lessee").
6. The clauses of the MSA have, in the MSA, been referred to as
"Articles".
7. Articles 3 and 9 of the MSA, which constitute, essentially, the
main subject matter of controversy in the present case, may be
reproduced thus:
"ARTICLE 3: TERM
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3.1 This Agreement shall commence from Execution Date
and shall be valid for a period of 9 of this Agreement. The
Parties shall extend the Term of this Agreement on mutual
consent basis, in writing and to be signed by authorized
representatives of both the Parties.
3.2 The Parties shall execute Handover Certificate in the
format attached herewith as Schedule F Part B ("Hand over
Certificate") on the date of execution/ handover of the Venue
by the Lessee to the Service Provider. In case the Lessee fails
to hand over the possession of the Venue to the Service
Provider on the Handover Date (More particularly given
under Annexure F), the Handover Date, Fit-Out Completion
Date and Commencement Date denoted in Annexure F shall
stand replaced by the Handover Date, Fit- Out Completion
Date and Commencement Date denoted in Handover
Certificate, for the purposes of this Agreement. Accordingly,
all corresponding obligations of the parties shall stand
triggered from the said dates mentioned in Handover
Certificate.
3.3 The Parties shall not be entitled to terminate the
Agreement during their respective Lock in Period in this
regard, the Parties agree as following:
i. In the event the Lessee terminate this
Agreement during the Lessee's Lock In Period for any
reason other than failure of the Service Provider to pay
Benchmark Revenue for two consecutive months
despite continuing to operate the Venue, the Lessee
shall be liable to pay to the Service Provider liquidated
damages equivalent to the applicable benchmark
Revenue (Inclusive of all taxes) for 12 months of the
Lessee's Lock In Period, as liquidated damages.
ii. In the event the Service Provider terminates this
Agreement during the Service Provider's Lock In
Period for any reason, other than those referred under
Article 9, then Service Provider shall be liable to pay
liquidated damages to the Lessee of an amount
equivalent to the applicable Benchmark Revenue
(inclusive of all taxes) for every month of the
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remaining period of the Service Provider Lock In
Period, as liquidated damages.
iii. The Parties hereby acknowledge that the said
liquidated damages are intended to be a genuine and
reasonable estimate of the damages and accordingly
the same shall not be considered a penalty."
"ARTICLE 9: Termination And Consequences of
Termination
9. 1 Termination
9.1.1 After Service Provider's Lock In Period, the Service
Provider may terminate this agreement by giving 2 (two)
months prior written notice to the Lessee. The Service
Provider will continue the benchmark revenue as well as
utility and maintains bills during the notice period failing
which the amount will be adjusted with Service Provider's
security deposit.
9.1.2 Notwithstanding Article 9.1.1, the Service Provider
shall be entitled to terminate the Agreement anytime
(including within the Service Provider's Lock In Period) in
the event; (a) there is a material breach of the Agreement by
the Lessee or there has been a misrepresentation by the
Lessee and the Lessee fails to remedy the said beach within a
period of 30 (Thirty) days from the date on which it is
notified of the said breach; or (b) Lessee fails for bankruptcy
or becomes or is declared insolvent or has a receiver or
manager appointed over all or substantially all of its assets; or
(c) a proposal of land acquisition in respect of any material
part of or all of the Venue being effected by any
governmental body; or (d) there being a dispute or threat of a
dispute concerning title of the Venue; or (e) if the lease deed
or any other agreement vesting possession of the venue on the
Lessee terminates; (f) if any act or omission of the Lessee
causes disruption in the business.
9.1.3 After lock in period, the Lessee may terminate this
Agreement by giving 2 (two) months prior written notice to
the Service Provider and Service Provider will continue to the
benchmark revenue as well as utility and maintains bills
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during the notice period failing which the amount will be
adjusted with Service Provider's security deposit.
9.1.4 The Lessee shall be entitled to terminate the
Agreement (including within the Lessee's Lock in Period) in
the event- a) the Service Provider fails to pay the Benchmark
Revenue for two (02) consecutive months despite being in
operations and the Service Provider fails to remedy the said
breach within a period of 30 (thirty) days from the date on
which it is notified of the said breach, b) the Service Provider
found involve in any irregular activity which may harm
integrity of the venue, c) The Service Provider fails to pay
utilities bill for consecutive 3 (three) months and the Service
Provider fails to remedy the said breach within a period of 15
days from 3rd bill presented, d) The Service Provider make
changes to the Property that is considered in the violation of
the building by laws of the local governing authority.
9.2 Consequences of Termination/ Expiry
9.2.1 Upon the expiration or earlier termination of the
Agreement, the lessee will immediately stop the use of the
brand name of the Service Provider and not do anything 9.2.1
Upon the expiration or earlier termination of the Agreement,
the lessee will immediately stop the use of the brand name of
the Service Provider and not do anything in contravention
with Article 11.1 and Article 11.2 in perpetuity.
9.2.2. The Service Provider shall be entitled, not obliged, to
remove all furniture and fixture installed by it in the Venue/
Venues. The Service Provider may vacate and handover the
Premises on "as is where is" basis at its sole discretion. The
expiration or termination of the Agreement shall not operate
to waive, release or otherwise relieve any Party of any
liability that has accrued prior to such termination or
expiration. Notwithstanding anything contrary to the
provisions of the Agreement which by their nature are
intended to survive, shall survive the termination or expiry of
the Agreement."
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8. Under the MSA, the respondent was to pay, to the petitioner, a
lease rental of ₹ 15 lakhs per month, exclusive of taxes, for the first
year, which was to be augmented by 5% every succeeding year.
9. The petitioner submits that the rental, as so fixed, was paid, by
the respondent, during the months of September, October and
November, 2019, but that, with effect from December, 2019, the
respondent discontinued payment.
10. On 25th December, 2019, the respondent addressed an e-mail, to
the petitioner, which was brief and terse in equal measure, and read
thus:
"Dear Mohit Ji
As informed to you earlier. We are unable to continue
with Operations of your banquet. We want to vacate the same
at the earliest.
Please do let us know if we have to cancel the
bookings or would you want to carry the future events from
January onward and serve these customers.
Regards
Abhitej Singh"
11. Mr. Ankit Jain, learned counsel for the petitioner, points out,
correctly, that the aforesaid e-mail, dated 25th December, 2019,
provided no reasons, whatsoever, for the purported inability, on the
part of the respondent, to continue with operating the banquet hall,
and its consequent desire to vacate the premises.
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12. The petitioner responded, to the afore-extracted e-mail, dated
25th December, 2019, of the respondent vide reply e-mail sent on the
very same day, in which it was alleged that, though the respondent
had acquired the banquet hall business of the petitioner in September,
2019, and had received the payments related thereto, it had failed to
comply with its liabilities, to which the MSA bound the respondent. In
view of the intention of the respondent, evidenced in the e-mail dated
25th December, 2019 supra, to vacate the premises and discontinue
operations, the petitioner demanded, from the respondent, compliance
with Article 3.3. (ii) of the MSA by payment, equivalent to the
benchmark revenue for sixteen months, along with applicable taxes. It
was also pointed out that Article 9.1.1 of the MSA required the
respondent to give two months' termination notice to the petitioner
and, during the said two months period, the respondent was to bear all
utility bills and expenses relating to the subject property. The
respondent was, therefore, requested to correct (its) "process" and
obligate (its) liabilities and responsibilities towards the agreement"
between the petitioner and respondent.
13. With effect from 31st December, 2019, the respondent claims to
have vacated the subject property, though this is disputed by the
petitioner.
14. On 14th January, 2020, the petitioner addressed an e-mail to its
landlord, Sanjay Varshney, and Raja Varshney, which read thus:
"Dear Sanjay ji/ Raja ji,
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This is to inform you that Weddingz.in are abruptly
ending there Management services contract with us and
would be vacating the premises. I would not be able to
continue to run operations at your premises and would vacate
it.
The further course of action would be discussed with
you in short period of time.
Thanks and regards
Mohit Jain"
15. On 1st January, 2020, the petitioner addressed a second e-mail,
to the respondent, stating that, as no response, to the earlier e-mail,
dated 25th December, 2019, had been received from the respondent,
the notice of termination, dated 25th December, 2019, of the
respondent stood invalidated, and also amounted to a conformation
that the respondent was carrying on business as usual.
16. The respondent again communicated, to the petitioner, on 15 th
January, 2020, by e-mail, in which it was stated thus:
"We wish to bring into your notice that you have continually
committed breach of the MSA, despite our repeated requests
for procuring the requisite licenses/ approvals/ permissions/
NOCs which are still pending from your end.
Since the non procurement of licenses is a material breach
under the MSA and because of the same, we are not able to
continue with our operations. We serve you this notice of
termination and as communicated to you on 25th December,
2019, the MSA shall stand terminated with effect from 31st
December, 2019, as you are not able to cure the said material
breach as per the terms of the MSA from the date of signing
of the MSA till 31st December, 2019."
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Consequent on the aforesaid "termination" of the MSA, with effect
from 31st December, 2019 (as the e-mail purported to state) the
respondent called upon the petitioner to immediately refund all
amounts payable to the respondent under the MSA, "including but
not limited to the amounts under lock in pay outs and interest free
refundable security deposit", whereupon the respondent stated that it
would hand over the subject property to the petitioner.
17. The petitioner replied, vide communication, dated 6th February,
2020, addressed through counsel, expressing undisguised chagrin at
the aforestated communications, of the respondent, whereby the
respondent had expressed its inability to continue with the operations
at the subject property, and its allegations that the petitioner had
breached of the MSA. Apropos the allegation that the petitioner had
failed to procure necessary licenses/approvals/permissions/NOCs, the
petitioner pointed out that it had received no communication, from the
respondent, at any earlier point of time, alleging failure on the part of
the petitioner, to procure any such licenses / approvals / permissions /
NOC. The falsity of this allegation, it was further submitted, was
apparent from the fact that the respondent had failed to provide any
particulars of the licenses / approvals /permissions / NOCs, which the
petitioner had failed to obtain. The petitioner asserted, emphatically,
that it had obtained all the licenses required for the purposes of
running the aforesaid banquet hall at the subject property and that, in
fact, before entering into the MSA with the respondent, the petitioner
had successfully been running the banquet hall since 2012, without
any disruption whatsoever. The petitioner, therefore, alleged that, by
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the aforesaid communication, it was apparent that the respondent was
seeking to escape its obligations under the MSA. The petitioner
invoked, yet again, Article 3.3(ii) of the MSA, whereunder the
respondent, in the event of it's terminating the MSA within the lock-
in-period of sixteen months, was required to make payments to the
petitioner, of an amount equivalent to the benchmark revenue (which
was ₹ 15 lakhs per month) for the unexpired remainder of the lock-in-
period. Additionally, the petitioner called upon the respondent to pay,
for the period February, 2020 till 11th January, 2021, under the terms
of the MSA, which worked out to a total ₹ 1,73,50,000/-. Interest, at
the rate of 24% per annum, and damages of ₹ 50 lakhs, were also
claimed, in the said response.
18. It was also alleged that, despite several attempts by the
petitioner, the respondent had refused to hand-over the subject
property to the petitioner, in the absence of a No Dues Certificate
from the petitioner. Finally, the aforesaid communication, dated 6th
February, 2020, invoked Article 10.1 of the MSA, which provided for
arbitration of disputes, between the petitioner and the respondent, and
nominated Mr. H.S. Sharma, learned District & Sessions Judge,
(Retd.) as the petitioner's arbitrator, Article 10.1 of the MSA read
thus:
"ARTICLE 10: DISPUTE RESOLUTION AND
GOVERNING LAWS
10.1 Arbitration: All disputes arising under this
Agreement shall be resolved by a sole arbitrator mutually
appointed by the Parties, in accordance with the provisions of
the Arbitration and Conciliation, Act 1996. In case the parties
fail to mutually appoint the sole arbitrator within 15 days
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from the date on which a notice to initiate resolution of a
dispute through arbitration has been raised by a Party the sole
arbitrator shall be appointed by the Delhi High Court. The
seal of Arbitration shall be New Delhi and the language shall
be English."
19. The aforesaid communication provoked a response, from the
respondent, through counsel, dated 18th February, 2020. Para 4 of the
said response alleged, once again, that the petitioner had "failed to
provide the requisite NOCs / licenses as per the Agreement", thereby
undermining the contents of the MSA and forcing the respondent to
terminate the MSA vide termination notice dated 15th January, 2020.
It was stated, in the said communication, that the termination was
effected in accordance with Article 9.1.2 of the MSA. In view
thereof, the communication invoked Article 4.2 of the MSA, which
reads thus:
"ARTICLE 4: MANAGEMENT FEES
4.2 The Service Provider shall deposit an interest free
refundable security deposit ("IFRSD') equivalent to INR
45,00,000/- (Indian Rupees Forty Five Lakh Only) under this
Agreement. Out of the total IFRSD, the Service Provider shall
deposit INR 15,00,000/- (Indian Rupees Fifteen Lakh Only)
after getting NOC from Owner, and balance amount of INR
30,00,000/ - (Indian Rupees thirty Lakh Only)when Lessee
will provide Property tax receipt and Building/ Fire Insurance.
IFRSD in full shall be refunded by the Lessee to the Service
Provider on expiry/ termination of this Agreement failing
which, the Service Provider shall have the right to deduct
equivalent amount from Benchmark Revenue payable by the
Service Provider. The Service Provider shall have the right to
continue to set- off the IFRSD amount from the Benchmark
Revenue till such time the entire IFRSD is recovered by the
Service Provider in case the amount of IFRSD to be
recovered is more than the monthly Benchmark Revenue. It is
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clarified that the Lessee shall not be entitled to terminate this
Agreement, irrespective of expiry of Lessee's Lock In Period,
till full IFRSD amount is recovered by the Service Provider.
In such case IFRSD is converted into Benchmark Revenue
and applicable taxes shall be borne by the service provider for
the same."
Invoking Article 4.2 of the MSA, the respondent called upon the
petitioner to pay an amount of ₹ 45 lakhs, along with 18% interest,
and legal expenses of ₹ 20,000/-
20. On 26th February, 2020 and 13th March, 2020, the respondent
claims to have addressed two communications, to the petitioner,
which could not be delivered to the petitioner, as the petitioner was
found to be unavailable in the premises. It is not in dispute, therefore,
that the petitioner did not, in fact, receive the said communications.
21. The communication, dated 26th February, 2020, reiterated, yet
again, the "numerous requests" purportedly made by the respondent,
to the petitioner, "for providing the necessary compliance documents
showing compliance to the essential terms of the MSA". Once again,
there was no specific reference, in the said letter, to the document,
which was wanting, insofar as compliance, by the petitioner, with the
terms of the MSA, was concerned. It was, instead, reiterated that the
respondent had decided to terminate the MSA with effect from 31 st
December, 2019, vide termination notice, dated 18th January, 2020
(this appears to be a typographical error, as the alleged termination
notice was dated 15th January, 2020).
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22. The communication called upon the petitioner, therefore, to
immediately disgorge, to the respondent, an amount of ₹ 9,87,63,364/-
towards the refund of the security deposit, venue booking, advance
amount received by the petitioner, and lock-in pay-outs, along with
interest @ 18% p.a. It was further asserted, in the said
communication, that the respondent was "always willing and ready" to
hand over the subject property to the petitioner, and that, it was the
petitioner who had failed to take over the property. In the
circumstances, the respondent "clarified" that, since it had stopped
providing services, as per the MSA, from the date of termination of
the MSA, and was always ready to hand over the subject property to
the petitioner, it was not liable to pay, to the petitioner, any amount in
lieu of the benchmark revenue or any other charges, after the date of
termination of the MSA, being 31st December, 2019. The
communication also purported to enclose, therewith, the keys of the
subject property.
23. The subsequent communication, dated 13th March, 2020
(which, too, was not delivered to the petitioner), briefly reiterated the
aforesaid allegations and purported, yet again, to enclose the keys of
the subject property. The claim for ₹ 9,87,63,364/-, along with interest
@ 18% p.a., was reiterated.
24. This was followed by a legal notice, dated 30th March, 2020,
from the respondent (through counsel), to the petitioner, which, drew
attention, inter alia, to Article 6.1.2 of the MSA, which read thus:
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"6.1.2 The Lessee has all necessary statutory and/ or
regulatory permission(s), Approval(s), licenses and permits
required for running and operating the Venue and conducting
its business and for providing the Services by the Service
Provider."
The notice alleged, once again, that the petitioner had breached the
MSA by failing to procure the "requisite licenses/approvals/
permissions/NOCs, which remained pending". Non-procurement of
licenses, it was reiterated, constituted a material breach under the
MSA, owing to which, the respondent was unable to continue with its
operations, as a result of which the respondent had been constrained to
terminate the MSA vide communication dated 25th December, 2019,
followed by the communications constituting the sequelae thereto. By
receiving the letter dated 23rd January, 2020, it was alleged that the
petitioner had accepted the termination of the MSA.
25. The Legal Notice, therefore, reiterated the demand of ₹
9,87,63,364/- along with interest @ 18% p.a., and proposed the name
of Mr. Arun Kumar Arya, learned District and Sessions Judge (Retd.)
as the Sole Arbitrator to adjudicate on the dispute between the
petitioner and the respondent.
26. It may be mentioned, even at this juncture, that though the
petitioner, and the respondent, have communicated their preference of
arbitration, to arbitrate on the aforesaid dispute, there has been no
consensus ad idem, on the issue, and no arbitrator has been appointed.
As such, the present petition is not hit by Section 9(3) of the 1996 Act.
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27. The petitioner responded to the aforesaid Legal Notice, dated
30th March, 2020, vide letter (through counsel), dated 8th April, 2020.
The petitioner categorically denied having received the
communications, dated 26th February, 2020 and 13th March, 2020,
addressed by the respondent. Apropos the allegation that the
petitioner had failed to obtain the requisite
licenses/approvals/permissions/NOCs, the petitioner pointed out, yet
again, that the communications, from the respondent, were completely
silent, regarding the specifics and particulars of the
licenses/approvals/permissions/NOCs, which the petitioner had yet to
procure or obtain. The petitioner reiterated, emphatically, that there
had been no default on the part of the petitioner, in obtaining any such
license/approval/permission or NOC. It was also pointed out that the
respondent had inspected all the documents and licenses, before
entering into the MSA. The plea of the petitioner having failed to
obtain requisite licenses/approvals/permissions or NOCs, it was
therefore submitted, was merely a ruse in order to avoid the
respondent's obligations under the MSA. This, it was submitted, was
also apparent from the e-mail, dated 25th February, 2020, which
purported to terminate the MSA, not on the ground of failure, on the
part of the petitioner, to obtain licenses/approvals/ permissions/NOCs,
but because the respondent expressed its inability to continue with the
operations at the subject property. The accusation of failure, on the
part of the petitioner, to obtain licenses/approvals/ permissions/NOCs,
was, therefore, it was alleged, merely manufactured, by the
respondent, to avoid the fulfilment of its obligations under the MSA.
It was further pointed out that the petitioner had never accepted the
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termination of the MSA but that, as the respondent was seeking to do
so, within the lock-in period, the obligations, flowing from Article
3.3(ii) of the MSA, would bind the respondent.
28. The petitioner, therefore, reiterated its demand for payment of ₹
15 lakhs per month, for the months of December, 2019 and January,
2020, and for a total amount of ₹ 1,73,50,000/-, for the period
February, 2020 till 11th January, 2021 along with interest and
damages.
29. While the recital of the exchange of communications, between
the petitioner and the respondent, through counsel or otherwise, would
conclude at this point, it is also necessary to highlight two more
communications, dated 6th May, 2020 and 22nd May, 2020, between
Raja Varshney and the petitioner, and vice versa.
30. The communication, dated 6th May, 2020, which was in the
nature of a Legal Notice by Raja Varshney, to the petitioner, alleged
default, on the part of the petitioner, in payment of rent to Raja
Varshney to an extent of ₹ 38,02,212/-. It was further alleged, in the
said Legal Notice, that certain cheques tendered by the petitioner, to
Raja Varshney, had been dishonoured by the Bank. The legal notice,
therefore, called upon the petitioner to pay an amount of ₹ 12,34,050/-
being the amount covered by the aforesaid three dishonoured cheques.
31. The petitioner responded, to the aforesaid Legal Notice, dated
6th May, 2020, vide response, dated 22nd May, 2020, also addressed
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through counsel. It is not necessary to refer, in detail, to the contents
of the said communication, as the present lis is not concerned with the
dispute between the petitioner and its landlord. Mr. Jeevan Ballav
Panda, learned counsel arguing for the respondent, however, seeks to
capitalise on the following sentence, with which para 2 of the reply of
the Legal Notice, dated 22nd May, 2020, commences:
"2. The malafide intentions on the part of your clients is
evident from the very fact that your entire legal notice is
completely silent about the above said fact and also the fact
that my client had duly communicated about the termination
of the present lease to your clients vide his e-mail dated 14-
01-2020 that he would not be able to continue or run his
operations due to the fraud committed upon him by M/s.
Weddingz.in (OYO Hotels and Homes Pvt. Ltd.) on behalf of
M/s. Oravel Stays Private Limited and was ready to vacate
your premises."
32. This concludes the recital of the relevant facts.
Claim of the Petitioner
33. In the backdrop of the aforesaid facts, the petitioner has moved
this Court, under Section 9 of the 1996 Act, seeking the reliefs
enumerated in the prayer clause, and reproduced in para 1 supra.
34. The petitioner has sought to make out a case of clear and
undeniable liability, of the respondent, to discharge payment, to the
petitioner, in terms of Article 3.3(ii) of the MSA, as the respondent
sought to terminate the MSA within the lock-in period. It is also
alleged, in the petition, that the respondent was known to be in the
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process of winding up its business and diverting its funds, thereby
necessitating immediate relief under Section 9 of the 1996 Act.
35. The respondent has filed a reply, to the petition, in which the
respondent has taken preliminary exception to the fact that the
petitioner had not disclosed the e-mail, dated 14th January, 2020
supra, addressed by the petitioner to its landlord, which, according to
the respondent, effectively terminated the lease between the petitioner
and its landlord. Once the lease between the petitioner and its landlord
stood terminated, the respondent contends that there could be no
question of the respondent carrying out any of its obligations in the
subject property, or of the petitioner being able to maintain any claim
for liquidated damages for the alleged lock-in period.
36. As such, the respondent contends that the petition is devoid of
any sustainable cause of action.
37. The respondent further denies, entirely, the applicability of
Article 3.3(ii) of the MSA, and contends that the termination of the
MSA, by the respondent, was relatable, not to Article 3.3(ii), but to
Article 9.1.2 thereof. It is averred, in the reply, that Article 9.1.2
empowered the respondent to terminate the MSA, even during the
lock-in period, even in the event of material breach by the petitioner,
without mulcting the respondent, thereby, of any liability towards
liquidated damages. Reliance has been placed on the non obstante
clause contained in Article 9.1.2 of the MSA
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38. The reply further invokes Article 5.2.6 of the MSA, whereunder
the petitioner was obliged to provide approvals for renewals of the
licenses and NOCs. It is alleged, in the reply, that the petitioner had
failed to comply with the mandate of the said Article 5.2.6, as it had
not provided the Approved Building Plan of the subject property,
along with Renewed Consent to Operate (hereinafter referred to as
"the CTO") from the Delhi Pollution Control Committee (DPCC).
The reply alleges that the last CTO, made available by the petitioner,
was of 29th January, 2014 vintage, which expired of 16th December,
2018.
39. It was in these circumstances, contends the reply, that the
respondent was constrained to express its inability to continue
operations with the subject property vide e-mail dated 25th December,
2019.
40. The reply also relies on the judgment of this Court in Tower
Vision India Pvt. Ltd. v Procall Private Limited1, for the proposition
that liquidated damages could be claimed only if the petitioner
established legal injury, following the alleged breach by the
respondent, and the loss suffered thereby. The mere existence of a
clause, in the MSA, creating a liability to liquidated damages, it is
averred, did not result in dispensation with this requirement.
41. The reply of the respondent, filed in response to the petition,
further avers that, as the claims of the petitioner are yet to be
1 2014 (183) CC 364
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adjudicated, the petitioner could not invoke Section 9 of the 1996 Act,
in order to obtain "pre-arbitration adjudication". No such imminent
threat, necessitating the exercise by this Court, of its extraordinary
power, conferred on it, by Section 9 of the 1996 Act, it is contended,
exists, as the respondent is one of the best and fastest growing
hospitability chains, and it is absurd to contend that the respondent
had started to wind up its business.
Rival submissions
42. I have heard, in detail, the submissions advanced by Mr. Ankit
Jain, learned counsel for the petitioner, and Mr. Jeevan Ballav Panda,
learned counsel for the respondent.
43. Mr. Jain, arguing for the petitioner, submits that the case
squarely falls under Article 3.3(ii) of the MSA. The hand over date, he
points out, was 12th September, 2019, and the lock-in period, as per
Article 3.3 of the MSA, would, therefore, expire only sixteen months
from the said date, i.e 11th January, 2021. In view thereof, he submits
that, as the respondent had sought to terminate the MSA during the
lock-in period, for reasons not relatable to Article 9 of the MSA, it had
effectively become liable to pay, to the petitioner, liquidated damages,
equivalent to the benchmark revenue (of ₹ 15 lakhs per month)
covering the remainder of the lock-in period. In this context, Mr. Jain
also relies on Article 3.3(iii) which specifically states that liquidated
damages, contemplated by Article 3.3(ii) was a genuine and
reasonable estimate of damages, and was not in the nature of a
penalty. This, Mr. Jain submits, would comply with the mandate of
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Sections 73 and 74 of the Indian Contract Act, 1872, which may be
reproduced thus:
"73. Compensation for loss or damage caused by breach
of contract - When a contract has been broken, the party who
suffers by such breach is entitled to receive, from the party
who has broken the contract, compensation for any loss or
damage caused to him thereby, which naturally arose in the
usual course of things from such breach, or which the parties
knew, when they made the contract, to be likely to result from
the breach of it.
Such compensation is not to be given for any remote and
indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation
resembling those created by contract. - When an
obligation resembling those created by contract has been
incurred and has not been discharged, any person injured by
the failure to discharge it is entitled to receive the same
compensation from the party in default, as if such person had
contracted to discharge it and had broken his contract.
74. Compensation for breach of contract where penalty
stipulated for - When a contract has been broken, if a sum is
named in the contract as the amount to be paid in case of such
breach, or if the contract contains any other stipulation by
way of penalty, the party complaining of the breach is
entitled, whether or not actual damage or loss is proved to
have been caused thereby, to receive from the party who has
broken the contract reasonable compensation not exceeding
the amount so named or, as the case may be, the penalty
stipulated for."
44. Insofar as Article 9.1.2 of the MSA - which the respondent
seeks to invoke - is concerned, Mr. Jain submits that the said Article
is totally inapplicable to the facts of the present case, He asserts that
there had been no material breach of the MSA, by the petitioner,
which is the first pre-requisite for Article 9.1.2 to apply.
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45. Further, submits Mr. Jain, the said Article would apply only
where the Lessee (i.e. the petitioner) fails to remedy the breach within
thirty days from the date on which it was notified by the Service
Provider (i.e. the respondent) thereof. No such communication,
notifying the petitioner of any particular breach, of the MSA, as
having been committed by it, was, Mr. Jain points out, ever issued by
the respondent.
46. Apropos the e-mail, dated 25th December, 2019, whereby the
respondent sought to terminate the MSA, Mr. Jain submits that the
communication was non-speaking in nature and did not set out any
reasons for the decision to terminate the MSA and vacate the
premises, except for stating that the respondent was unable to work
therein. There was no allegation, in the said communication, of any
default, by the petitioner in compliance with the terms of the MSA. It
was only when the petitioner invoked, in its response, dated 25 th
December, 2020 and 1st January, 2020, Article 9.1.1 of the MSA, that
the respondent, for the first time, in its e-mail, dated 15th January,
2020, alleged that the petitioner had defaulted in obtaining the
necessary licenses/approvals/permissions and NOCs. Even while so
alleging, it is pointed out that the communication was completely
silent regarding the particulars and specifics of the
licenses/approvals/permissions and NOCs, which the petitioner had
failed to obtain. The petitioner, he points out, drew the attention of
the respondent, repeatedly, to this fact, but that the respondent, in all
its responses, merely continued to allege that the petitioner had
defaulted in obtaining the necessary licenses/approvals/permissions
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and NOCs, without disclosing the specifics thereof.
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47. Mr. Jain points out that it was only when the matter reached
this Court, for the first time, in para 3 (d) of its reply to the petitioner,
that the respondent has alleged, specifically, that the petitioner had not
provided the latest sanctioned building plan of the subject property
and the revised CTO. This allegation, submits Mr. Jain, was clearly
false, as has been pointed out by the petitioner, in its rejoinder to the
reply filed by the respondent to the present petition. The petitioner has
also filed, with its rejoinder, the building plan of the premises, which,
he submits, stands approved by the DDA on 29th January, 2010. It has
also filed the CPO, by the DPCC, issued on 26 th June, 2019 - i.e.
points out Mr. Jain, even before the MSA, between the petitioner and
respondent was entered into - which has expressly been made valid
till 14th December, 2023.
48. Mr. Jain would, therefore, seek to contend that, while raising a
bogey, in its communication to the petitioner, of the petitioner having
defaulted in obtaining necessary licenses/approvals/permissions and
NOCs, merely in order to escape the liability cast on it by Article
3.3(ii) of the MSA, the respondent, on being driven to a corner by the
filing of the present petition by the petitioner, has, as a desperate
measure, sought to allege default, on the part of the petitioner, in
providing the sanctioned building plan and approved CPO, both of
which had, in fact, been provided by the petitioner, as was known to
the respondent all along.
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49. The petitioner has also denied the assertion, of the respondent,
that it had vacated the subject property on 31st December, 2019. In
this context, the petitioner has pointed out that it never received the
letters dated 26th February, 2020 and 13th March, 2020, stated to have
been sent by the respondent and that it was for the first time, in its
legal notice, dated 30th March, 2020, that the petitioner came to know
of this averment of the respondent.
50. Mr. Jain further submits that the reliance, by the respondent, on
the e-mail dated 14th January, 2020 supra, from the petitioner to its
landlord, was completely misguided, as the said e-mail could not, in
any manner be said to justify the premature termination of the MSA
by the respondent. It is pointed out, by the petitioner, that the e-mail,
dated 14th January, 2020, and the alleged termination, thereby, of the
lease between the petitioner and its landlord, was never taken as a
ground, by the respondent, to justify termination of the MSA in any of
its communications, addressed to the petitioner, which, rather, sought
to justify such termination on the ground of failure, on the part of the
petitioner, to obtain necessary licences, NOCs, permissions and
approvals. The respondent, therefore, contends Mr. Jain, has been
vacillating in its stance, asserting, at one point, that the petitioner was
in default of Article 5.2.6 of the MSA, and, at another (in the affidavit
filed in response to the petition), that the respondent had exited from
the premises in view of the termination of the lease between the
petitioner and its landlord.
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51. Moreover, points out Mr. Jain, the e-mail, dated 14th January,
2020, was merely in the nature of an intimation, by the petitioner, to
its landlord, that, as the respondent was seeking to terminate the MSA
and vacate the premises, the petitioner would not be able to run
operations therein and would, therefore, vacate the subject property.
Any such vacation, points out Mr. Jain, had necessarily to be preceded
by handing over of the subject property, by the respondent to the
petitioner, which itself never took place.
52. Mr. Jain also sought to distinguish the decision in Tower
Vision1 by referring to Article 3.3(iii) of the MSA, and has pointed out
that no similar clause was available in Tower Vision1. In view of the
fact that Article 3.3(iii) of the MSA expressly stated that the liquidated
damages, payable under Article 3.3(ii) were in the nature of a genuine
pre-estimate of damages, and were not in the nature of a penalty, Mr.
Jain submits that the respondent could not seek to escape its liability
thereunder. That apart, Mr. Jain points out that Tower Vision1 was in
the context of Section 433 of the Companies Act, which statutorily
contemplates an undeniable debt. It would be fallacious, contends Mr.
Jain, to analogize the situation that obtained, in Tower Vision1, with
that which obtains in the present case. Insofar as non-refund of
security deposit is concerned, Mr. Jain submits that premature
termination of the MSA could not be justified on the basis thereof and
relies, for the said purpose, on the judgment of this Court in M/s
General Electronics International Inc. v. M/s U.C. Jain HUF2,
2 MANU/DE/1332/2009
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specifically on para 26 of the said decision. He also relies, in this
context, on para 107 of H.S. Bedi vs. NHAI3.
53. Mr. Jeevan Ballav Panda, learned Counsel for the respondent,
responding to the submissions of Mr. Ankit Jain, submits, at the very
outset, that, as the lease between the petitioner and its landlord stood
terminated by the e-mail, dated 14th January, 2020 supra, there could
be no question of the respondent continuing to operate from the said
premises, or of any liability, by the respondent towards the petitioner,
after the said date. It was for this reason, he submits, that his client
vacated the subject property on 31st December, 2019. To substantiate
his submission that the lease between the petitioner, and its landlord,
in fact, stood terminated, on 14th January, 2020, Mr. Jeevan Ballav
Panda also relies on the opening sentence of para 2 of the
communication dated 22nd May, 2020, addressed by the petitioner
(through counsel) to the respondent, extracted in para 54 supra. Even
while so submitting, Mr. Jeevan Ballav Panda admits, fairly, that there
was no consensus ad idem, between the petitioner and its landlord,
regarding the date of termination of the lease between them, as the
petitioner was contending that the lease stood terminated on 14th
January, 2020, and the petitioner's landlord was seeking to contend
that it terminated only on 30th April, 2020. Even so, submits Mr.
Jeevan Ballav Panda, having taken a stand, in its communications with
its landlord, that the lease between the petitioner and its landlord stood
terminated on 14th January, 2020, it was not open to the petitioner to
3 2015 (220) DLT 179
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maintain, at this point, any claim against the respondent, for any
period after the said date.
54. Mr. Jeevan Ballav Panda also places emphatic reliance on
Tower Vision1, especially on paras 24, 25 and 28 of the said decision
which, therefore, may be reproduced thus :
"24. What follows from the above is that even if there is a
clause of liquidated damages, in a given case, it is for the
Court to determine as to whether it represents genuine pre-
estimate of damages. In that eventuality, this provision only
dispenses with the proof of "actual loss or damage".
However, the person claiming the liquidated damages is still
to prove that the legal injury resulted because of breach and
he suffered some loss. In the process, he may also be called
upon to show that he took all reasonable steps to mitigate the
loss. It is only after proper enquiry into these aspects that the
Court in a given case would rule as to whether liquidated
damages as prescribed in the contract are to be awarded or
not. Even if there is a stipulation by way of liquidated
damages, a party complaining of breach of contract can
recover only reasonable compensation for the injury sustained
by him and what is stipulated in the contract is the outer limit
beyond which he cannot claim. Unless this kind of
determination is done by the Court, it does not result into
"debt".
25. At this juncture, we would like to refer to the judgment
of Bombay High Court in the case of E-City Media Private
Limited a Private Limited Company v. Sadhrta Retail
Limited a Public Limited Company, [2010] 153 Comp.Cas
326 (Bom.) (rendered by Single Judge). In this case also,
winding up petition was filed on account of alleged dues
stipulated in the contract in case of breach. Facts of the case
disclose that the petitioner had appointed the respondent as an
exclusive agent for designated branding sites situated within
the premises of a shopping mall. The petitioner had permitted
the respondent to display advertisements at the Mall, in a
theatre and upon ticket jackets. The contract was to
commence on 22.5.2008 and was to conclude on 31.7.2009.
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This term was extended by a formal amendment till
September, 2009. The agreement also provided that in the
event respondent fail to make payment for a period of one
month, during the term of the agreement, the petitioner would
be at liberty to terminate the agreement with notice of seven
days. In that event, respondent was obliged to make good
losses and damages which may be suffered by the petitioner.
The respondent was liable to pay entire royalty/minimum
guaranteed amount mentioned in the agreement with interest
@ 18% per annum on alleged breach committed by the
respondent. The petitioner terminated the contract and
demanded the entire amount of royalty/minimum guaranteed
amount. On the respondents failure to pay, winding up
petition was filed. The Court dismissed the said petition
holding that it was not maintainable upon a claim for damages
which could not be treated as debt. It was held that damages
become payable only when they are crystallized upon
adjudication. Until and unless an adjudication takes place
with a resultant decree for damages, there is no debt due and
payable. Damages require adjudication. Until then, the
liability of a party in alleged breach of a contract does not
become crystallized. In support of this view, the Court
referred to a Division Bench judgment of Karnataka High
Court in Greenhills Exports (P) Ltd. v. Coffee Board,
Bangalore, [2001] 106 Comp.Cas 391 (Kar) in the following
words:
"...Mr. Justice R.V. Raveendran (as the Learned Judge
then was) speaking for the Division Bench formulated
the propositions of law which emerge from judgments
of the Supreme Court and the High Court. The Court
held as follows:
(i) A "Debt" is a sum of money which is now
payable or will become payable in future by
reason of a present obligation. The existing
obligation to pay a sum of money is the sine qua
non of a debt.
"Damages" is money claimed by, or ordered to
be paid to; a person as compensation for loss or
injury. It merely remains a claim till
adjudication by a court and becomes a "debt"
when a court awards it.
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(ii) In regard to a claim for damages (whether
liquidated or unliquidated), there is no "existing
obligation" to pay any amount. No pecuniary
liability in regard to a claim for damages, arises
till a court adjudicates upon the claim for
damages and holds that the defendant has
committed breach and has incurred a liability to
compensate the plaintiff for the loss and then
assesses the quantum of such liability. An
alleged default or breach gives rise only to a
right to sue for damages and not to claim any
"debt". A claim for damages becomes a "debt
due", not when the loss is quantified by the
party complaining of breach, but when a
competent court holds on enquiry, that the
person against whom the claim for damages is
made, has committed breach and incurred a
pecuniary liability towards the party
complaining of breach and assesses the
quantum of loss and awards damages. Damages
are payable on account of a fiat of the court and
not on account of quantification by the person
alleging breach.
(iii) When the contract does not stipulate the
quantum of damages, the court will assess and
award compensation in accordance with the
principles laid down in Section 73. Where the
contract stipulates the quantum of damages or
amounts to be recovered as damages, then the
party complaining of breach can recover
reasonable compensation, the stipulated amount
being merely the outside limit.
(iv)...
(v) Even if the loss is ascertainable and the
amount claimed as damages has been calculated
and ascertained in the manner stipulated in the
contract, by the party claiming damages, that
will not convert a claim for damages into a
claim for an ascertained sum due. Liability to
pay damages arises only when a party is found
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to have committed breach. Ascertainment of the
amount awardable as damages is only
consequential.
28. This is a case where the premises were given by the
petitioner to the respondent on license basis vide lease and
license agreement dated 18.2.2008. Lock-in period of 33
months was prescribed and the entire amount is claimed on
account of premature termination of agreement by the
respondent. The petitioner is claiming total amount of the
lock-in period. It is nowhere stated as to how it has suffered
any loss on this account and whether the liquidated damages
stipulated in the agreement are genuine pre-estimate damages.
Once we have accepted the judgment in Manju Bagai (supra)
and we are also in agreement with the view taken by the
Bombay High Court in E-City Media Private Limited
(supra), the consequence of that would be to dismiss this
petition as well."
(Emphasis supplied)
55. The afore-extracted passages from Tower Vision1, submits Mr.
Jeevan Ballav Panda, clearly underscore the legal position that, even if
a clause, contemplating liquidated damages, existed in the MSA, the
petitioner would, nevertheless, have to establish, on evidence, that the
liquidated damages sought by it were in the nature of a genuine pre-
estimate of damages, failing which no claim for liquidated damages
could sustain.
56. Mr. Jeevan Ballav Panda submits that the validity of the
termination, by the respondent, of the MSA, was an issue which was
entirely within the domain of the arbitrator, who would adjudicate
thereon. He relies on the decision of the Supreme Court in Kailash
Nath Associates v. DDA4, to contend that the legality of the
4 (2015) 4 SCC 136
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termination cannot be tested in a petition under Section 9 of the 1996
Act. It is pointed out, in the context of this judgment, that the
petitioner has not sought to make out a case that it was impossible to
prove actual loss or damage.
57. Reverting to Tower Vision1, Mr. Jeevan Ballav Panda points
out that, even assuming there had been a premature and unsustainable
termination of the MSA by the respondent, the petitioner would be
entitled, consequently, only to "reasonable compensation for the
injury sustained by him". As on date, submits Mr. Jeevan Ballav
Panda, the petitioner has not sustained any injury. Even if he were to
sustain injury, the petitioner would be entitled, not to liquidated
damages, but only to reasonable compensation. As such, submits Mr.
Jeevan Ballav Panda, the petitioner does not have any right to sue in
praesenti.
58. Mr. Jeevan Ballav Panda also refers to the notice, dated 6th
February, 2020, from the petitioner, whereby it invoked Article 10 of
the MSA, which provided for arbitration. It is pointed out, by Mr.
Jeevan Ballav Panda, that the amounts claimed in the notice were the
same as those which were sought to be secured in the present petition,
which, according to him, was clearly impermissible.
59. I may, even at this juncture, state that I am unable to appreciate
this submission, of Mr. Jeevan Ballav Panda, as it is but natural that
the claim, in the notice invoking arbitration, would be the same as the
claim in that Section 9 petition, where the prayer is for directing
furnishing of security.
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60. Mr. Jeevan Ballav Panda further submits that the petitioner was
not facing any prejudice, as an amount of ₹ 45 lakhs was lying with
the petitioner.
61. Insofar as the specific requirements of Article 9.1.2 of the MSA
are concerned, Mr. Jeevan Ballav Panda submits that, though the
termination of the MSA, as purportedly effected by his client, by the
communication dated 25th February, 2019, may not be strictly in
compliance with Clause 9.1.2, the communication, dated 25th
December, 2019 did nevertheless, terminate the MSA. Besides, Mr.
Jeevan Ballav Panda relies on the communication, dated 14th January,
2020 supra (through counsel) between the petitioner and its landlord
to contend that the petitioner had acted on the aforesaid
communication, dated 25th February, 2019, and treated it as an
effective termination of the MSA.
62. Insofar as the communications dated 26th February, 2020 and
13th March, 2020 are concerned, Mr. Jeevan Ballav Panda submits
that, as repeated attempts have been made by the courier company to
deliver the consignment, but delivery could not be effected only
owing to non-availability of the petitioner, the petitioner was deemed
to have been served with the said letters. In any event, he points out,
prayer (i) in the petition did not survive for consideration, as the
respondent was willing to hand over the keys of the subject property
to the petitioner.
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63. Finally, Mr. Jeevan Ballav Panda reiterates his submission that
the petitioner could not seek to secure any amount towards liquidated
damages, even if claimed under Article 3.3 (ii) of the MSA, prior to
trial and determination of liability, by the competently constituted
arbitral tribunal. Such securing of liquidated damages, he submits
could not be directed in a petition under Section 9 of the 1996 Act.
64. Mr. Jeevan Ballav Panda seeks to distinguish the judgment of
this Court in General Electronics International Inc.2, on the ground
that the said decision was rendered in a petition under Section 34 of
the 1996 Act, questioning the arbitral award and had no applicability,
therefore, to a litigation relatable to Section 9 of the 1996 Act. Mr.
Jeevan Ballav Panda also questions the right, of the petitioner, to
claim liquidated damages on the ground that there was no evidence to
indicate that the petitioner had taken any steps to mitigate its losses.
65. For all these reasons submits Mr. Jeevan Ballav Panda, no case,
for passing of any interlocutory directions, under Section 9 of the
1996 Act, even before the dispute was referred to, and suffered,
adjudication by the arbitrator, exists.
66. Mr. Jeevan Ballav Panda has also sought to place reliance on
the judgement, of a Division Bench of this Court in Associated
Journal Ltd v. ICRA Ltd5, the Special Leave Petition, preferred
against which, was dismissed, by the Supreme Court, on 12th April,
20136.
5 MANU/DE/0851/2012
6 Associated Journal Ltd v. ICRA Ltd, MANU/SCOR/20429/2013
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67. Arguing in rejoinder, Mr. Ankit Jain submits that, once it was
acknowledged by Mr. Jeevan Ballav Panda, that the purported
termination of the MSA, by the communication dated 25th December,
2019, was in accordance with Article 9.1.2 thereof, Article 3.3(ii)
immediately kicked in, and rendered the respondent liable to pay
liquidated damages in terms thereof. Mr. Jain reiterates his
submission that Tower Vision1 could not apply, in view of Article
3.3(iii), in the face of which it was not open to the respondent to seek
to contend that the liquidated damages, claimed under Article 3.3(ii)
did not constitute a genuine plea estimate of damage.
68. The applicability of Article 3.3(ii), Mr. Jain points out, was, in
fact, acknowledged by the respondent itself, as was manifest in its
legal notice dated 30th March, 2020, as well as in other
communications wherein the respondent demanded, from the
petitioner, lock in pay outs, as mentioned in Annexure A to the MSA.
It is pointed out, by Mr. Jain, that his client is demanding from the
respondent, the very same lock-in pay-outs, which the respondent has,
in its communication to the petitioner demanded from the petitioner.
69. Apropos the submission of Mr. Jeevan Ballav Panda, that there
could be no pre-arbitral payment of liquidated damages, before the
liability, of the respondent, to take such payment was determined, Mr.
Ankit Jain points out that, this petition does not pray for any such
payment being made out to his client but merely seeks to secure the
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amount involved, which is a remedy specifically statutorily
contemplated, by Section 9 of the 1996 Act.
Analysis and Conclusion
70. Unlike Order XXXIX of the CPC, which relates to cases in
which "temporary injunction may be granted" by the Court, Section 9
of the 1996 Act delineates the circumstances in which the Court may
pass orders of "interim protection". The effort of the Section 9 court
is, therefore, to protect the corpus of the dispute, where it is found to
be arbitrable.
71. The 1996 Act is, preambularly, "an Act to consolidate and
amend the law relating to domestic arbitration, international
commercial arbitration and enforcement of foreign arbitral awards as
also to define the law relating to conciliation and for matters
connected therewith or incidental thereto". In my opinion, exercise of
jurisdiction, by the Court, under the 1996 Act, has to be duly informed
by this preambular declaration. The 1996 Act is not a statute which
purports to delineate powers exercisable by a Court. It is a statute
which consolidates and applies the law relating to arbitration and
conciliation, and for matters connected therewith or incidental thereto.
Provisions, in the 1996 Act, which confers jurisdiction and authority
on the Court have, therefore, to be treated as provisions which are
"connected with", or "incidental to", the arbitral or conciliatory
process. The 1996 Act does confer specific jurisdiction on civil
courts, in certain eventualities, but, in my view, the civil court would
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be erring, in law, if, in exercise of such jurisdiction, it remains
unmindful of the preamble to the 1996 Act.
72. This position stands underscored by Section 5 of the 1996 Act,
which determines the "extent of judicial intervention", thereunder, and
commences with a non obstante clause. The provision stipulates that,
"notwithstanding anything contained in any other law for the time
being in force, in matters governed by this Part, no judicial authority
shall intervene except where so provided in this Part". The statutory
caution, administered by Section 5 must, in my view, also extend to
the exercise of jurisdiction under Section 9. The Section 9 court is,
therefore, to exercise jurisdiction strictly in accordance with the said
provision.
73. This aspect is pivotal to the understanding of Section 9, and to
appreciating the amplitude of the jurisdiction conferred thereby. The
provision commences with the words "a party may, before or during
the arbitral proceedings or at any time after the making of the arbitral
award but before it is enforced in accordance with section 36..."
Jurisdiction, under the said provision can be exercised, by the Court,
either before arbitral proceedings, or during the arbitral proceedings,
or after making of the arbitral award but before enforcement thereof.
The thread that runs through the said expressions is, clearly, that there
must exist arbitral proceedings, current or contemplated. It is for this
reason that the Section 9 Court must be convinced that the petitioner,
before it, intends to initiate the arbitral process. Absent evidence of
such intent, it would be impermissible for the Court to pass orders
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74. The Supreme Court has, in Sundaram Finance Ltd v. NEPC
India Ltd7, emphasised this aspect, by ruling that, before passing an
interim order under Section 9, the court is required to be satisfied
about the existence of an arbitration agreement, and the applicant's
intention to take the matter to arbitration. The specific issue,
addressed by the Supreme Court in the said case, was delineated, in
the opening paragraph of the judgement, as "whether under Section 9
of the Arbitration and Conciliation Act, 1996, the court has
jurisdiction to pass interim orders even before arbitral proceedings
commence and before an arbitrator is appointed." The High Court had,
in that case, dismissed the Section 9 petition, filed by the appellant
(before the Supreme Court) on the ground that the appellant had not
initiated any efforts towards setting arbitral proceedings in motion.
The Supreme Court reversed the decision, and the following passages,
from the said decision, merit reproduction:
"11. The reading of Section 21 clearly shows that the
arbitral proceedings commence on the date on which a
request for a dispute to be referred to arbitration is received
by the respondent. It is in this context that we have to
examine and interpret the expression "before or during
arbitral proceedings" occurring in Section 9 of the 1996 Act.
We may here observe that though Section 17 gives the
Arbitral Tribunal the power to pass orders, the same cannot
be enforced as orders of a court. It is for this reason that
Section 9 admittedly gives the court power to pass interim
orders during the arbitration proceedings.
*****
13. Under the 1996 Act, the court can pass interim orders
under Section 9. Arbitral proceedings, as we have seen,
7 (1999) 2 SCC 479
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commence only when the request to refer the dispute is
received by the respondent as per Section 21 of the Act. The
material words occurring in Section 9 are "before or during
the arbitral proceedings". This clearly contemplates two
stages when the court can pass interim orders, i.e., during the
arbitral proceedings or before the arbitral proceedings. There
is no reason as to why Section 9 of the 1996 Act should not
be literally construed. Meaning has to be given to the word
"before" occurring in the said section. The only interpretation
that can be given is that the court can pass interim orders
before the commencement of arbitral proceedings. Any other
interpretation, like the one given by the High Court, will have
the effect of rendering the word "before" in Section 9 as
redundant. This is clearly not permissible. Not only does the
language warrants such an interpretation but it was necessary
to have such a provision in the interest of justice. But for such
a provision, no party would have a right to apply for interim
measure before notice under Section 21 is received by the
respondent. It is not unknown when it becomes difficult to
serve the respondents. It was, therefore, necessary that
provision was made in the Act which could enable a party to
get interim relief urgently in order to protect its interest.
Reading the section as a whole it appears to us that the court
has jurisdiction to entertain an application under Section 9
either before arbitral proceedings or during arbitral
proceedings or after the making of the arbitral award but
before it is enforced in accordance with Section 36 of the Act.
*****
16. In our opinion, this view correctly represents the
position in law, namely, that even before the commencement
of arbitral proceedings, the court can grant interim relief. The
said provision contains the same principle which underlies
Section 9 of the 1996 Act.
*****
19. When a party applies under Section 9 of the 1996 Act,
it is implicit that it accepts that there is a final and binding
arbitration agreement in existence. It is also implicit that a
dispute must have arisen which is referable to the Arbitral
Tribunal. Section 9 further contemplates arbitration
proceedings taking place between the parties. Mr
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Subramanium is, therefore, right in submitting that when an
application under Section 9 is filed before the commencement
of the arbitral proceedings, there has to be manifest intention
on the part of the applicant to take recourse to the arbitral
proceedings if, at the time when the application under Section
9 is filed, the proceedings have not commenced under Section
21 of the 1996 Act. In order to give full effect to the words
"before or during arbitral proceedings" occurring in Section
9, it would not be necessary that a notice invoking the
arbitration clause must be issued to the opposite party before
an application under Section 9 can be filed. The issuance of a
notice may, in a given case, be sufficient to establish the
manifest intention to have the dispute referred to an Arbitral
Tribunal, but a situation may so demand that a party may
choose to apply under Section 9 for an interim measure even
before issuing a notice contemplated by Section 21 of the said
Act. If an application is so made, the court will first have to
be satisfied that there exists a valid arbitration agreement
and the applicant intends to take the dispute to arbitration.
Once it is so satisfied, the court will have the jurisdiction to
pass orders under Section 9 giving such interim protection as
the facts and circumstances warrant. While passing such an
order and in order to ensure that effective steps are taken to
commence the arbitral proceedings, the court while
exercising jurisdiction under Section 9 can pass a conditional
order to put the applicant to such terms as it may deem fit
with a view to see that effective steps are taken by the
applicant for commencing the arbitral proceedings. What is
apparent, however, is that the court is not debarred from
dealing with an application under Section 9 merely because
no notice has been issued under Section 21 of the 1996 Act.
*****
21. In view of the aforesaid discussions, it follows that the
High Court erred in coming to the conclusion that the trial
court had no jurisdiction in entertaining the application under
Section 9 because arbitration proceedings had not been
initiated by the appellant."
(Emphasis supplied)
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75. Before exercising jurisdiction under Section 9, therefore, the
Court has to satisfy itself that there exists (i) an arbitration agreement,
(ii) an arbitral dispute and (iii) manifest intention, on the part of the
petitioner, to initiate arbitral proceedings. Issuance of a notice
invoking arbitration is, however, not a sine qua non, for manifest
intention to initiate arbitral proceedings to be said to exist. If, such a
notice is issued, that, by itself, may be sufficient to evince the
existence of such intention. The existence of intention has, however,
necessarily to be determined, on a case to case basis, depending on the
facts before the court. Non-existence of evidence of such intent,
therefore, would render the Section 9 petition incompetent. Where
intent to initiate arbitral proceedings exists, but no steps, towards
fructification of such intent, have yet been initiated by the petitioner,
then the Section 9 court is empowered, therefore, to put the petitioner
to terms, even while granting interim protection under Section 9.
These, to my mind, had to be treated as the guiding principles for
every court, seeking to exercise jurisdiction under Section 9 of the
1996 Act.
76. Subject to observing these safeguards, the principles governing
exercise of discretion under Section 9 are the same as those which
apply to grant of interim relief under Order XXXIX of the CPC, i.e.
the existence of a prima facie case in favour of the Section 9
applicant, the balance of convenience being in favour of grant of
"interim protection" and the possibility of irreparable loss or
prejudice, were such interim protection not to be granted.
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77. The very use of the word "protection", however, necessarily
predicates the existence of something, which is required to be
protected. This, therefore, introduces a fourth factor, which the
Section 9 court is required to bear in mind. The Section 9 petitioner
was also required to establish, to the satisfaction of the court, the
existence of circumstances which require grant of interim protection
and urgent necessity. Expressed otherwise, the Section 9 court is
required to be satisfied that, were interim protection not to be granted,
there is a possibility of the arbitral proceedings being frustrated. Only
thus could the court be able to act in furtherance of the preambular
purpose behind the 1996 Act, i.e., to ensure successful
commencement, conducting and conclusion of the arbitral
proceedings, and resolution, thereby, of the dispute between the
parties before it.
78. While exercising jurisdiction under Section 9, the Court is
required to be mindful of the fact that it is not a pre-arbitral arbitrator.
The Court should not, therefore, entrench on the jurisdiction of the
arbitral tribunal, to determine whether interim measures of protection,
during the pendency of the arbitral proceedings, are required to be
granted, or not. This jurisdiction vests, statutorily, on the arbitral
tribunal, by Section 17.
79. Whether under Section 9, or under Section 17, sub-clause
(1)(ii)(b), which empowers the Court (under Section 9) or the Arbitral
Tribunal (under Section 17) to secure the amount in dispute in the
arbitration, is to be administered with additional caution, as grant of
any relief, under this sub-clause, would also be justified only if it is by
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way of "interim protection". For this reason, though there is some
ambivalence, in judicial thought, on this aspect, it is generally
accepted that the principles governing Order XXXVIII Rule 5 would,
generally, be applicable, while considering a prayer for furnishing of
security, under Section 9(1)(ii)(b) or Section 17(1)(ii)(b)8. The
principle, enunciated by the Supreme Court in Raman Tech &
Process Engineering Co. v. Solanki Traders9 that, before being
entitled to relief by way of furnishing of security of the amount in
dispute in the arbitration, the petitioner has to satisfy the Court that the
respondent is attempting to remove, or dispose of its assets, with the
intention of defeating the decree that may be passed, has, generally,
been regarded as a guiding factor.
80. These principles emerge out of a long line of decisions, which
this Court has, in its recent judgements in Avantha Holdings v. Vistra
ITCL India Ltd10 and CRSC Research and Design Institute v.
Dedicated Freight Corridor Corporation Of India Ltd11, attempted to
digest and distil.
81. It remains, therefore, to apply these principles to the facts of the
present case.
82. The petitioner contends that, after December 2019, the
respondent defaulted in making payments, as required by the MSA.
8 Ajay Singh v. Kal Airways Ltd, 2017 SCC Online Del 8934; BMW India Pvt Ltd v. Libra
Automotives Ltd, 261 (2019) DLT 579; Goodwill Non-Woven (P) Ltd v. Xcoal Energy and Resources
LLC, MANU/DE/1165/2020
9 (2008) 2 SCC 302
10 MANU/DE/1548/2020
11 MANU/DE/1803/2020
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The respondent contends, per contra, that it was not required to do so,
as, w.e.f. 31st December, 2019, the MSA stood terminated.
83. Pivotal, to the assessment of whether the respondent was, or
was not, in breach of the MSA, is the question of whether, in fact, the
MSA itself stood terminated w.e.f. 31st December, 2019.
84. The respondent has sought to contend that, in exercise of its
jurisdiction under Section 9, this Court cannot adjudicate on this
aspect and has relied, for the said purpose, on the decision in Kailash
Nath Associates4. The contention is summarily rejected, as Kailash
Nath Associates4 does not enunciate any such proposition and, in fact,
does not even deal with Section 9 of the 1996 Act. Indeed, where the
defence, of the respondent, to the claims of the petitioner, urged in a
petition under Section 9, is that the contract stands terminated, thereby
terminating, also, all liabilities of the respondent thereunder, I fail to
understand how the Court can be expected to arrive at a prima facie
finding, regarding the merits of the petitioner's claim, without, in the
first instance, examining, though again prima facie, whether the plea
of termination of the contract is justified, or not. Else, it would
become possible for the respondent, in every case, to illegally
terminate the contract with the petitioner and, on the petitioner
approaching this Court under Section 9, seeking securing of the
amount, to which the respondent became liable as a consequence of
such illegal termination, oppose the petition on the ground that this
Court cannot adjudicate on the validity of the termination.
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85. I am unable to accept this proposition. Unquestionably, the
final decision, regarding the validity of the termination, would be
within the province and domain of the Arbitral Tribunal. If, however,
as in the present case, termination, if effected during the lock in period
without due justification, results in the respondent becoming liable to
make payment to the petitioner, the Section 9 court would, in my
view, be entirely within its jurisdiction in arriving at a prima facie
opinion regarding the validity of the termination, so as to appreciate
the submission, of the petitioner, regarding its entitlement to payment
from the respondent. Any contention that, the moment the contract is
terminated, even if illegally, the Section 9 Court stands denuded of its
power has, in my view, to be summarily rejected.
86. In the present case, the respondent contends that the MSA
stood terminated w.e.f. 31st December, 2019, consequent on the e-mail
communication, dated 25th December, 2019 (reproduced in para 10
supra), from the respondent to the petitioner. I am unable to agree.
All that is stated, in the said communication, is that the respondent
was unable to continue with operations of the banquet, and desired to
vacate at the earliest. No reason, for the decision, is contained in the
communication dated 25th December, 2019.
87. Termination, of a contract, has strictly to abide by the
covenants, in that regard, as engrafted in the contract itself.
88. The MSA contained, in Article 9 and the various clauses
thereunder, the modes and methods by which it could be terminated.
It is not in dispute that the lock in period was yet to expire, on 31st
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December, 2019. The purported "termination", by the respondent, of
the MSA, therefore, took place during the lock in period. The right of
the Service Provider to terminate the MSA, during the lock in period,
is circumscribed by Article 9.1.2 thereof. Clauses (b) to (f) of Article
9.1.2 (which stands reproduced in para 7 supra), admittedly, do not
apply in the present case. The respondent could, therefore, at best,
pitch its case under clause (a) of Article 9.1.2. This clause permits the
service provider to terminate the MSA any time, in the event of
material breach of the MSA by the lessee, i.e. the petitioner in the
present case, if the lessee fails to remedy the said breach within 30
days from the date on which it is notified thereof. Mr. Jeevan Ballav
Panda has not been able to draw my attention to any communication,
prior to 25th December, 2019, whereby the respondent has notified the
petitioner of any breach, on its part, of the covenants of the MSA.
Notification, to the other party, of such breach, and grant of 30 days'
time to the other party to remedy the breach, are indispensable
prerequisites, before clause (a) of Article 9.1.2 could apply. Mr. Ankit
Jain specifically drew attention to the fact that these prerequisites were
never satisfied in the present case, and Mr. Jeevan Ballav Panda was
unable to dispute the proposition. In fact, Mr. Jeevan Ballav Panda,
while acknowledging that the termination of the MSA, by the
respondent, may not, strictly speaking, have been in accordance with
the covenants in the MSA, sought to contend that the communication,
dated 25th December, 2019, nevertheless, terminated the MSA. The
argument has merely to be noted to be rejected. Termination of the
contract has strictly to abide by the covenants of the contract,
providing for termination. The parties to a contract, especially a
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commercial contract, are inextricably bound by the specifications and
stipulations contained therein. As there was no communication, prior
to 25th December, 2019, from the respondent to the petitioner, drawing
the attention, of the latter, to any breach of the covenants of the MSA,
far less grant of 30 days' time, to the petitioner, to remedy such
breach, the communication, dated 25th December, 2019, cannot be
said to have terminated the MSA. The MSA, therefore, continued to
remain in force even after the said communication. The contention, of
Mr. Jeevan Ballav Panda, to the contrary, prima facie, fails to impress.
89. Mr. Jeevan Ballav Panda also sought to place reliance, in the
above context, on the recital in para 2 of the legal notice, dated 22nd
May, 2020, from the petitioner to the Counsel for the landlord of the
premises, Raja Varshney. The reliance, by the respondent, is to the
reference, in para 2 of the said legal notice, to "the termination of the
present lease", as stated to have been communicated, by the petitioner
to the landlord vide email dated 14th January, 2020.
90. In the first place, I am unable to understand how the respondent
could seek to rely on a communication, by the lawyer for the
petitioner, to the lawyer of the petitioner's landlord. Recitals in such a
communication cannot, by any stretch of imagination, terminate the
contractual relationship between the petitioner and respondent. Even
assuming, therefore, arguendo, that the petitioner had communicated,
to its landlord, that the MSA stood terminated, that cannot, ipso facto,
terminate the MSA, which was not between the petitioner and its
landlord, but between the petitioner and the respondent. Such
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termination could take place only in accordance with Article 19 of the
MSA which, otherwise, would be reduced to a dead letter.
91. Besides, such a recital, at worst, was in the nature of a
contention by the petitioner, in response to the legal notice issued by
the landlord. Mr. Jeevan Ballav Panda fairly acknowledged that the
petitioner's landlord did not accept this contention, but asserted, per
contra, that the MSA was terminated only in April, 2020. Even
between the petitioner and its landlord Raja Varshney, therefore, the
date of termination of the MSA was in dispute. There was no
consensus, ad idem, on this aspect. The reliance, by Mr. Jeevan
Ballav Panda, on the communication dated 22nd May, 2020, to
contend that the MSA stood terminated w.e.f. 31st December, 2019 is
also, therefore, prima facie misconceived.
92. Besides, even if it were to be assumed that the respondent
terminated the MSA vide its communication dated 25th December,
2019, such termination, not having been effected for any reason
contemplated by Article 9, the respondent would, prima facie, be
visited with the liability cast by Article 3.3(ii) of the MSA. This
clause specifically ordains that, in the event of termination, by the
service provider, i.e. the respondent, of the MSA, during the lock-in
period, for any reason other than those referred under Article 9, the
service provider would be liable to pay liquidated damages, to the
petitioner, of an amount equivalent to the applicable Benchmark
Revenue for every month of the remaining lock-in period. The
demand, by the petitioner, to the respondent, for compliance with this
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clause, and payment of the liability cast on the respondent thereunder,
therefore, prima facie had merit.
93. In this context, Mr. Jeevan Ballav Panda sought to contend that
liquidated damages, even in a case of breach of contract, could be
claimed only if there was proof of injury having been sustained by the
claimant as a consequence of such breach, and, even in such a case,
would have to be restricted to a "reasonable amount". Reliance has
been placed, by Mr. Jeevan Ballav Panda, for the purpose, on the
judgement of this Court in Tower Vision India Pvt. Ltd.1 Mr. Jain
contends, per contra, that Tower Vision India Pvt. Ltd.1 is
distinguishable on facts.
94. The covenants of the contract, in Tower Vision India Pvt.
Ltd.1, which provided for the liquidated damages in the case of breach,
is clearly distinguishable from Article 3.3 in the present case. Clauses
11.3 and 11.4 of the agreement under consideration in Tower Vision
India Pvt. Ltd.1, read thus:
"11.3 Anchor Sires: with Respondent to Anchor Sites a Lock
In period of 10 (ten) years shall apply, however, the Operator
shall be liable for payment of the IP Fees with respect to any
specific Anchor Site as follows:
11.3.1 If the termination takes place during the initial 2 (two)
years as of Commencement Date, then the Operator will pay
100% of the IP Fees for the balance of the initial 2 year period
and 50% of the IP Fees for the remaining 8 years.
11.3.2 If the termination takes place after the initial 2 (two)
years as of the commencement date then the Operator will
pay 50% of the IP fees for the remaining of the 10 years Lock
In Period.
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11.4 Shared Sites: with respect to Shared Site, a Lock In
Period of 5 (Five) years shall apply, however, the Operator
shall be liable for payment of the IP Fees with respect to any
specific Shared Site as follows:
11.4.1 If the termination takes place during the initial 2 (two)
years as of Commencement Date, then the Operator will pay
100% of the IP Fees for the balance of the initial 2 year period
and 30% of the IP fees for the remaining 3 years.
11.4.2 If the termination takes place after the initial 2 (two)
years as of Commencement date, then the Operator will pay
30% of the IP Fees for the remaining of the 5 year Lock In
Period."
There was, therefore, no covenant, akin to Article 3.3(iii), in the
present case, in the Agreement forming subject matter of
consideration in Tower Vision India Pvt. Ltd.1 In fact, this Court held,
in para 18 of the report, thus:
"Thus, while on one hand, damages as a result of breach are
to be proved to claim the same from the person who has
broken the contract and actual loss suffered can be claimed,
on the other hand, Section 74 of the Act entitles a party to
claim reasonable compensation from the party who has
broken the contract which compensation can be pre-
determined compensation stipulated at the time of entering
into the contract itself. Thus, this section provides for pre-
estimate of the damage or loss which a party is likely to suffer
if the other party breaks the contract entered into between the
two of them. If the sum named in the contract is found to be
reasonable compensation, the party is entitled to receive that
sum from the party who has broken the contract. Interpreting
this provision, the Courts have held that such liquidated
damages must be the result of a "genuine pre-estimate of
damages". If they are penal in nature, then a penal
stipulation cannot be enforced, that is, it should not be a sum
fixed in terrarium or in terrarium. This action, therefore,
merely dispenses with proof of "actual loss or damage".
However, it does not justify the award of compensation when
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in consequence of breach, no legal injury at all has resulted,
because compensation for breach of contract can be awarded
to make good loss or damage which naturally arose in the
usual course of things, or which the parties knew when they
made the contract, to be likely to result from the breach."
(Italics and underscoring supplied)
95. In Kailash Nath Associates4, too, this principle finds
enunciation, in the following words:
"Where a sum is named in a contract as a liquidated amount
payable by way of damages, the party complaining of a
breach can receive as reasonable compensation such
liquidated amount only if it is a genuine pre-estimate of
damages fixed by both parties and found to be such by the
court."
96. In the present case, Article 3.3(iii) itself covenants that the
liquidated damages, payable under Article 3.3(ii) are acknowledged,
by the parties, "to be a genuine and reasonable estimate of the
damages", and would "not be considered a penalty". Prima facie,
therefore, Section 74 of the Indian Contract Act, 1872, cannot operate
to disentitle the petitioner to payment, in accordance with Article
3.3(ii).
97. Interestingly, and as correctly pointed out by Mr. Ankit Jain,
the respondent, in its notice dated 26th February, 2020, to the
petitioner, specifically stated that, as per its earlier notice, the
petitioner was "called upon to refund all amounts payable to (the
respondent) under the MSA without any delay or demur, including but
not limited to the amounts under lock in payouts and interest free
refundable security deposit". What is sauce for the goose,
axiomatically, is sauce for the gander.
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98. Of course, the final entitlement, of the petitioner, to the said
amount, would be subject to determination, by the court - i.e., in the
present case, by the Arbitral Tribunal - of such entitlement. A prima
facie case of entitlement, however, does, in my opinion, stands
established, in favour of the petitioner and against the respondent.
99. No contest has been made, by the respondent, to the
quantification of liquidated damages, by the petitioner, even by way of
a residuary argument, the respondent having contented itself by
disputing the entitlement, of the petitioner, thereto. As I have held
that, prima facie, the entitlement of the petitioner to payment, by the
respondent, in accordance with Article 3.3(ii), stands made out, I am
not required, at least for the purposes of the present order, to enter into
the quantification thereof.
100. A prima facie case of entitlement, in favour of the petitioner,
having thus been made out, it remains to be seen whether furnishing
of security, as prayed, would be justified on the principles of balance
of convenience, irreparable loss and on the indicia applicable to Order
XXXVIII Rule 5 of the CPC. These considerations, apropos Section
9(1)(ii)(b) of the 1996 Act, are interlinked, and may, therefore, be
examined together.
101. The averments of the petitioner, in paras 27 to 30 of the
petition, the reply thereto, in the corresponding paras of the counter
affidavit filed by the respondent, and the rejoinder, by the petitioner,
thereto, may be reproduced, for ready reference, thus:
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Paras 27 to 30 of the Petition:
"27. That the respondent is in the process of winding up its
affairs and its terminating various agreements with various
persons/ entities. The petitioner has come to know that the
business model of the respondent has completely failed and
hence the respondent has decided to wind up its business in
the near future. For the said reason the petitioner has come to
know that respondent, is diverting its funds. The petitioner
has also come to know that the respondent is diverting its
funds in order to defeat any and all liabilities that the
respondent may be found liable for.
28. That in fact, Mr. Mohit Jain the Director of the
Petitioner herein had a telephonic conversation with Mr. Amit
Vig, Vice President-Retail Sales & Banquets of the
respondent and Mr. Hemant Pant, the Director of the Business
Development Team of the respondent on 26.12.2019. In the
said conversation Mr Mohit had specifically asked the said
two officials of the respondent herein as to the reason for the
intention of the respondent to terminate the agreement. On the
same, the said officers of the respondent had informed Mr.
Mohit Jain that they had entered into the Management
Services Agreement dated 04.09.2019, however, the top
management of the respondent had taken a decision to
terminate the agreement in view of the fact that the
respondent was not being able to make profit, as they had
envisaged at the time of entering into the Management
Services Agreement dated 04.09.2019.
29. That the aforesaid conversation would reveal that in
view of the rising liabilities of the respondent, the respondent
is winding up its business and is therefore, cancelling its
agreements with various entities.
30. That the respondent is liable to immediately remove all
its belonging from the said property and vacate the said
property and hand over the same to the petitioner herein."
Corresponding paragraphs of the reply of the respondent:
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"27. The contents of the paragraph under Reply are denied
as being false, baseless and misleading. It is specifically
denied that the Respondent is in the process of winding up its
affairs and terminating its agreements with various
persons/entities. It is stated that the Petitioner has resorted to
bald and reckless allegations to create prejudice and mislead
the minds of right thinking people so as to create an illusion
of a cause of action, when there exists none. The Respondent
is one of the largest and fastest-growing hospitality chains of
leased and franchised hotels, homes and living spaces and has
multiple domestic and international investors. The
Respondent in the month of March 2020 has raised a huge
amount of funding from its major investors, as stated in the
preceding paragraphs.
Therefore, it is absurd on the part of the Petitioner to
whimsically contend that the Respondent has decided to wind
up its business in the near future or is diverting its funds in
order to defeat any or all liabilities as alleged or otherwise or
at all. The statements made under the paragraphs under
reference are based on assumptions and hypothesis without
the slightest of attempt or endeavor to ascertain the veracity
of such allegations made. Therefore, no reliance or credence
whatsoever can be placed by this Hon'ble Court on such
factually incorrect and fictitious statements.
28. The contents of the paragraph under reference and
specifically the contents of the compact disk (copy not served
on the Respondent) allegedly filed, the transcript of the
purported telephonic conversation dated 26 December 2019 in
Hindi and its purported English translation are denied and
disputed in its entirety and the Petitioner is put to strict proof
thereof by cogent evidence. It is denied that any official had
been formally authorized by the Respondent to act in their
official capacity and make any statement as has been sought
to be alleged in the paragraph under reference. Assuming
although not admitting that such a conversation did take
place, the Respondent denies the same for want of knowledge
and lack of authority of any individuals concerned.
29. The contents of the paragraph under Reply are denied
and disputed as being false and baseless. In this connection,
the contents of the preceding paragraph are referred to and
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relied upon and are not being repeated for the sake of brevity
and avoiding prolixity.
30. The contents of the paragraph under Reply are denied
as being false and contrary to the records. It is reiterated that
the Respondent has already vacated the property on 31
December 2019 and has also handed over the keys of the
property to the Petitioner and does not have any movable
property lying at the premises. In fact, a statement to that
effect was made on behalf of the Respondent before the
Hon'ble Court during the proceedings dated 5 June 2020 and
the same was also recorded in the order dated 5 June 2020. As
stated hereinabove the Petitioner has itself terminated the
lease with its landlord vide an email dated 14 January 2020,
which could not have been possible without the Petitioner
having possession of the premises. In this connection, reliance
is placed on the contents of the letters dated 26 February 2020
and 13 March 2020 issued by the Respondent to the
Petitioner."
Corresponding paragraphs of the rejoinder :
"27. That the contents of Para No.27 of the reply are wrong
and denied and the contents of corresponding Para of the
petition are reiterated and reaffirmed as correct. It is denied
that the Petitioner has resorted to bald or reckless allegations
to create any prejudice or mislead the minds of right thinking
people so as to create an illusion of a cause of action, when
there exists none. It is denied that the Respondent is one of
the largest and fastest growing hospitality chains of leased
and franchised hotels, homes and living spaces or has
multiple domestic and international investors. It is denied that
the Respondent in the month of March
2020 has raised a huge amount of funding from its major
investors, as stated in the preceding paragraphs. It is denied
that the statements made under the paragraphs under
reference are based on assumptions and hypothesis without
the slightest of attempt or endeavor to ascertain the veracity
of such allegations made or that no reliance or credence
whatsoever can be placed by this Hon'ble Court on such
factually incorrect and fictitious statements.
It is further submitted that after this incident, the petitioner
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came to know that the respondent is a rank defaulter in
fulfilling its requirements and has cheated many persons in a
similar manner as the petitioner herein. Had the petitioner
known about this fact, it would have never entered into the
MSA with the respondent.
Some of such cases are as follows, in March 2020,
Hyderabad based hospitality company Conclave lnfratech
moved the National Company Law Tribunal, Ahmedabad
against OYO for non-payment of dues. Conclave lnfratech
had accused OYO of breaching the assured revenue clause in
the contract, under which it owned nearly Rs. 13 Lakhs every
month since May 2018.
In November 2019, a hotel owner from Bengaluru had also
filed an FIR against Ritesh Agarwal and some other top
executives over non-payment of the assured benchmark
revenue of Rs. 7 Lakhs per month.
In another case, the situation went out of hand in Sikkim in
October 2019, when some hotel partners held four OYO
employees hostage over unpaid dues. Hotel owners alleged
that dues had piled up to Rs. 1 Crore. Sikkim Hotel and
Restaurant Association added that instead of paying the dues,
the company had sent the said employees to get more hotels
on board. Besides, this there has been a series of protests
against OYO since August 2019. Hotel owners, who were not
affiliated to any major union or association, had also carried
out independent protests in multiple Indian cities including
Nashik, Pune, Kota, ·Manali, Jaipur, Ahmedabad and Delhi.
Hence, in view of such large scale protests across the country
the apprehensions of the petitioner are very much genuine and
the figure of investors investing in the respondent company
doesn't mean that the company is running successfully and
earning huge profits, rather it is again adding up further
liabilities upon the respondent company to pay back to such
investors, which is the respondent . company is utterly failing.
All the above facts came to the
knowledge of the Petitioner from news reports.
28-29. That the contents of Para No.28 and 29 of the
reply are wrong and denied and the contents of corresponding
Para of the petition are reiterated and reaffirmed as correct.
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30. That the contents of Para No.30 of the reply are wrong
and denied and the contents of corresponding Para of the
petition are reiterated and reaffirmed as correct. It is denied
that the Respondent has already vacated the property on 31
December ·2019 or has also handed over the keys of the
property to the Petitioner and does not have any movable
property lying at the premises. It is denied that the Petitioner
has itself terminated the lease with its landlord vide an email
dated 14 January 2020,which could not have been possible
without the Petitioner having possession of the premises. It is
denied that the respondent has ever issued the letters dated 26
February 2020 and 13 March 2020 to the Petitioner.
It is to submit that on the one hand the Respondent alleges
that the keys were sent by them on 17.03.2020 (though
denied) and on the other hand Respondent seeks to contend
that the Petitioner had keys to the property on 14.01.2020
itself when the Petitioner, as per the Respondent, sought to
terminate its lease.
In reply to the same, the factual submissions made in reply
to Para No.12 and 19 herein above may kindly be read as
reply to the Paragraph under reply which are not repeated
herein for the sake of brevity and to avoid repetition."
102. Mr. Jeevan Ballav Panda did not, during his submissions,
choose to refute the contentions, of the petitioner, as extracted
hereinabove, and as contained in the petitioner and rejoinder. In my
opinion, these averments, if correct, do make out a case for securing
the amount, to which the petitioner claims to be entitled, so as to
ensure that the arbitral award, if ultimately passed in favour of the
petitioner, is not rendered a futility.
103. At this juncture, I deem it appropriate, at the cost of repetition,
to emphasise that, in directing furnishing of security, this Court is not
adjudicating the entitlement, of the petitioner, to the amount directed
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to be secured, with any modicum of finality. Were any such attempt
to be made, this Court would be trespassing on the jurisdiction of the
arbitrator, to arbitrate on the dispute, which is clearly impermissible.
All that this Court is required to determine, while examining a prayer
relatable to Section 9(1)(ii)(b), is whether a case, for securing the
amount in dispute in the arbitration, is, or is not, made out. Once the
Court determines that the petitioner has an arguable case, and that the
interests of justice requires securing of the amount, so as to render the
award, if finally passed in favour of the petitioner, meaningful and
capable of enforcement, the Court is not only empowered, but is also
obligated, to secure the amount. The opinion of the Court, in such a
case, has to be understood as expressly limited to determining the
issue of whether the amount is required to be secured or not, in the
context of Section 9, and is not to be regarded as an expression of
opinion on merits, regarding the entitlement of the petitioner to the
said amount. The Arbitral Tribunal would, therefore, proceed to
decide the petitioner's entitlement, uninfluenced by any observations,
in that regard, contained in this judgement.
104. Mr. Jeevan Ballav Panda also placed reliance on General
Electronics International Inc.2 and Onida Finance Ltd v. Malini
Khanna12, to contend that this Court could not direct securing of
liquidated damages, prior to the trial of the entitlement of the
petitioner, in the arbitral proceedings. I am unable to agree with the
submission, which is not supported by either of the decisions cited by
Mr. Jeevan Ballav Panda. General Electronics International Inc.2
12 2002 (1) RCR (Rent) 546
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was a petition under Section 34 of the 1996 Act, after rendition of the
Award. Onida Finance Ltd12 does not deal with this issue at all.
105. Similarly, the judgement, of this Court, in Associated Journal
Ltd5 has no relevance to the controversy in issue is, in that case, it was
specifically found that the termination of the lease was in accordance
with the covenants, in that regard, in the Lease Deed. In fact, para 15
of the judgement of the Division Bench significantly notes that the
right, of the respondent, to terminate the lease by three months' prior
notice was not contingent upon any default committed by the
appellant. In the present case, per contra, Article 9.1.2 of the MSA
empowered the respondent to terminate the MSA, during the lock in
period, only on specific defaults having been committed by the
petitioner. The consequences, of unjustified termination of the MSA
during the lock in period also stand specifically delineated therein.
The decision in Associated Journal Ltd5 what, if anything, therefore,
militates against, rather than support, the case sought to be canvassed
by Mr. Jeevan Ballav Panda.
Conclusion
106. Resultantly, I am of the opinion that the prayer, of the
petitioner, for a direction, to the respondent, to secure the amount of
₹2,23,50,000/-, is required to be allowed. That, in my view, would
sufficiently secure the petitioner's interest, and no further direction, to
the respondent, restraining transfer of its assets, or attaching its bank
account, needs to be passed.
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107. Article 10.1 of the MSA provides for resolution of the dispute,
between the parties, by arbitration, and contemplates appointment of a
sole arbitrator, mutually, by the parties, in accordance with the
provisions of the 1996 Act. It further provides that, in default of any
party, to mutually appoint the sole arbitrator, within 15 days from the
date of invocation of the arbitration clause by the other, the sole
arbitrator would have to be appointed by this Court. Para 21 of the
petitioner specifically avers that, vide legal notice dated 6th February,
2020, the petitioner has invoked the aforesaid arbitration clause and
that, despite receipt, of the said legal notice, by the respondent, on 13 th
and 14th February, 2020, no reply was forthcoming. The subsequent
communications, from the respondent to the petitioner, do not make
any reference to the resolution of the disputes by arbitration. In view
thereof, there is clear default, on the part of the respondent, to
cooperate in mutual appointment of an arbitrator, agreeable to both
parties.
108. Section 11 (6) of the 1996 Act requires either of the parties to
approach this Court, in such circumstances, to appoint the arbitrator.
In order to ensure that no undue advantage, of the present order, is
taken, I deem it appropriate to subject to the interim protection,
granted by this order, to taking of further steps, by the petitioner,
towards appointment of the arbitrator.
109. Resultantly, the present petition is allowed, in terms of prayer
(iii) thereof. The respondent is directed to deposit, with the Registrar
General of this Court, an amount of ₹ 2,23,50,000/-, by way of
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demand draft. The deposit would be retained in an interest-bearing
fixed deposit, and would remain subject to the outcome of the arbitral
proceedings. The petitioner is also directed, for this purpose, to take
further steps, towards appointment of the arbitrator, in accordance
with the provisions of the 1996 Act, within a period of 15 days, failing
which this order would cease to have effect, and the respondent would
be entitled to be returned the deposit of ₹ 2,23,50,000/-, along with
interest accrued thereon.
110. No orders are, in the circumstances, required to be passed on
the remaining prayers in the petition, which, accordingly, stand
disposed of.
111. There shall be no order as to costs.
C. HARI SHANKAR, J.
NOVEMBER 03, 2020
kr/dsn
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