Madras High Court
Icici Prudential Life Insurance ... vs Mrs.P.Usha on 15 December, 2021
O.P.No.171 of 2014
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATE D : 15.12.2021
CORAM:
The Hon'ble Mr. Justice SENTHILKUMAR RAMAMOORTHY
O.P.No.171 of 2014
ICICI Prudential Life Insurance Co. Ltd.
Regd. Office at
ICICI Prulife Tower,
1089, Appa Saheb, Marathe Marg,
Prabhadevi, Mumbai – 400 025,
Rep. by its Manager-Legal
Ms.Shital Patwa ... Petitioner
Vs
1.Mrs.P.Usha
2.Dr.A.M.Swaminathan I.A.S.(Retd)
Sole Arbitrator,
Nani Palkhivala Arbitration Centre,
22, Karpagambal Nagar,
Mylapore, Chennai. ... Respondents
PRAYER : This Petition has been filed under Section 34 of the Arbitration
and Conciliation Act 1996 praying to set aside the Award dated 18.11.2013
passed in Arbitration Case No.14 of 2013.
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O.P.No.171 of 2014
For Petitioner : Mr.J.Sivanandaraaj
for Ms.Ridhima Sharma
For Respondents : Mr.V.Anand for R-1
ORDER
The Petitioner herein was the respondent before the Arbitral
Tribunal. The Arbitral Award dated 18.11.2013(the Award) is assailed by
this petition.
2. A Lease Agreement dated 17.04.2008 (the Lease Agreement)
was entered into between the Petitioner, as lessee, and the first Respondent,
as lessor. The period of lease was for an aggregate term of nine years with
provision for escalation after three and six years. Consequently, the
aggregate lease period was scheduled to expire on 16.04.2017. Although
the lease was for an aggregate period of 9 years, the Lease Agreement was
neither adequately stamped nor registered. The Lease Agreement provided
for termination by the lessee by giving three months advance written notice
to the lessor. The Lease Agreement stipulated that the lessee would deposit
a sum of Rs.18,00,000/- as security deposit, which was repayable by the
lessor on the date of termination of lease and at the time of handing over
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vacant possession of the relevant premises. A monthly lease rental of
Rs.3,00,000/- was payable by the lessee, inclusive of municipal taxes but
exclusive of service tax and any future taxes imposed by the Government.
On the same date, a separate Agreement for Provision of Amenities and
Services(the Amenities Agreement) was entered into between the parties.
The Amenities Agreement dealt with the provision of the amenities listed in
Annexure -1 thereto by the lessor to the lessee. These amenities included
electricity connection for a total power load of 100 KVA, a diesel generator
set with 100% back up, electrical fittings, fixtures, furniture, AC Units,
LAN, UPS, etc. In connection with the Amenities Agreement, an interest
free refundable security deposit of Rs.27 lakhs was paid by the lessee to the
lessor. This Agreement was co-terminus with the Lease Agreement. While
the Lease Agreement provided for dispute resolution by a sole arbitrator, the
Amenities Agreement contained a separate arbitration clause, which
provided for dispute resolution by a sole arbitrator, if mutually agreed upon,
or, in the alternative, a panel of three arbitrators with the venue of
arbitration being Mumbai.
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3. By a communication dated 20.05.2009, the Petitioner issued a
notice of termination of the Lease Agreement by relying upon Clause 24
thereof. By such communication, the first Respondent was called upon to
refund the security deposit of Rs.45 lakhs + electricity deposit, if any. This
Rs.45 lakh claim appears to be both under the Lease Agreement and the
Amenities Agreement (Rs.18 lakhs + Rs.27 lakhs = Rs.45 Lakhs). A
subsequent communication dated 26.08.2009 was also issued stating that the
Petitioner is ready to hand over possession on 27.08.2009 and that the rent
for June to August 2009, the amenities charges for June to August 2009 and
the maintenance for June to August 2009 along with the electricity charges
and diesel charges would be handed over at the time of handing over
possession. Further communications dated 28.06.2009 and 30.08.2009 were
also issued in this connection.
4. By a reply dated 02.09.2009(wrongly mentioned as
02.09.2008), the first Respondent informed the Petitioner that she had not
received the rent, service tax, maintenance charges, electricity charges and
diesel charges for the months of June to September 2009. In addition, it was
stated therein that the first Respondent would refund the interest free
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security deposit after deducting the pending amounts and interest thereon
once the keys are hand over. By a further communication dated 16.09.2009,
the Petitioner called upon the first Respondent to take possession by
refunding the security deposit with interest thereon at 30% per annum.
5. In the above facts and circumstances, a dispute arose between
the parties. The Petitioner herein filed an application under Section 9 of the
Arbitration and Conciliation Act, 1996 (the Arbitration Act) seeking security
for a sum of Rs.45 lakhs and also requesting that a court receiver be
appointed to take possession of the premises. Eventually, in appellate
proceedings arising out of the order passed in the application under Section
9, a Division Bench of this Court, by order dated 09.07.2012 in
O.S.A.No.247 of 2012, directed the parties to resolve the dispute through
arbitration conducted by the Nani Palkhivala Foundation. The Arbitral
Tribunal was constituted pursuant to such order. The first Respondent
herein submitted a statement of claim in April 2013. In such statement of
claim, the first Respondent claimed a sum of Rs.4,25,86,200/-; future rents
till the date of handing over of possession by the Petitioner; 30% interest on
rental dues; Rs.50 lakhs towards damages to amenities; and surrender of
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possession. The Petitioner herein submitted a counter statement with a
counter claim. In such counter statement-cum- counter claim, the Petitioner
sought to recover the sum of Rs.45 lakhs with interest thereon at 30% per
annum from 30.08.2009. The Arbitral Tribunal framed ten issues based on
the pleadings. Both parties adduced documentary evidence: the first
Respondent/claimant exhibited 11 documents as Exhibits C1 to C11; and the
Petitioner/respondent exhibited 15 documents as Exhibits R1 to R15.
Neither party adduced oral evidence. Eventually, the arbitral proceedings
were disposed of by the Award.
6. The Petitioner assailed the Award on multiple grounds. The
Petitioner contended that the Award is contrary to public policy and is
patently illegal by referring to the documentary evidence on record. By
drawing reference to the Lease Agreement, the Petitioner contended that the
Lease Agreement provided for a security deposit of Rs.18 lakhs. Such
security deposit was liable to be refunded by the lessor upon expiration or
termination of the Lease Agreement. The Petitioner relied upon Clause 24 of
the Lease Agreement which enables the lessee / Petitioner to terminate the
Lease Agreement without assigning any reason by providing three months'
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advance written notice. The Petitioner also relied upon Clause 30 of the
Lease Agreement which stipulates that the first Respondent / lessor shall
refund the security deposit on the date of handing over of keys / vacant
possession of the demised premises. In case the security deposit is not
refunded as per the Lease Agreement, it was contended that interest at 30%
per annum is payable from the date the security deposit became refundable.
7. The Petitioner also relied upon the communications dated
20.05.2009, 26.08.2009, 30.08.2009 and 31.08.2009 so as to emphasize that
it had called upon the first Respondent to take vacant possession.
According to the Petitioner, the rental dues, amenities charges, maintenance,
electricity charges and diesel charges were offered to be paid at the time of
handing over possession, but the first Respondent refused to take
possession. Indeed, the Petitioner contended that it was constrained to file
applications under Section 9 of the Arbitration Act both to ask for security
for the sum of Rs.45 lakhs and also for the appointment of a receiver to take
possession of the premises.
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8. The Petitioner also referred to the Award. After pointing out
that the Arbitral Tribunal framed 10 issues, the Petitioner contended that the
Arbitral Tribunal committed a patent illegality by refusing to rely upon the
Lease Agreement even for collateral purposes. As regards the Amenities
Agreement, the Petitioner contended that the said Agreement was duly
stamped and that it did not require registration. With regard to the
inadequacy of stamp duty on the Lease Agreement, the Petitioner contended
that such defect was curable. In addition, it was contended that the Arbitral
Tribunal was duty bound to impound the document and send it to the
Collector for levying the deficit stamp duty with penalty. Once the
deficiency was remedied, the document should have been take into
consideration to adjudicate the dispute. After pointing out that the Lease
Agreement was marked as Exhibit C3 and the Amenities Agreement as
Exhibit C2, the Petitioner contended that once a document is received in
evidence and exhibited, it cannot be disregarded because it is inadequately
stamped as per Section 36 of the Indian Stamp Act, 1899 (the Stamp Act).
9. More importantly, as indicated above, the Petitioner contended
that the Amenities Agreement did not require compulsory registration as per
Section 17 of the Indian Registration Act, 1908 (the Registration Act).
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However, the Arbitral Tribunal erroneously concluded that the Amenities
Agreement was inadequately stamped and that it required compulsory
registration. On such basis, it was contended that the Arbitral Tribunal
disregarded both the Lease Agreement and the Amenities Agreement. As a
corollary, the Arbitral Tribunal failed to take into account the clauses of the
Lease Agreement and the Amenities Agreement as regards refund of the
security deposit along with interest thereon.
10. The Petitioner further contended that the Arbitral Tribunal
gravely erred in concluding that its authority was derived entirely from the
order of the Division Bench of this Court by which the dispute was referred
to the Nani Palkhivala Foundation. The Petitioner also contended that the
Award is liable to be interfered with because the Arbitral Tribunal exceeded
its jurisdiction and held that the first Respondent is entitled to set-off the
rental dues and amenities charges, even in the post-termination period, until
the date of handing over of keys and possession by the Petitioner.
11. In support of these contentions, the Petitioner referred to and
relied upon the following judgments in course of oral submissions:
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(i) Silicon Graphics Systems India Private Limited v. NIDAS
Estates Private Limited and Ors. 182(2011) DLT 753, wherein, at paragraph
18, the Delhi High Court held that the licensor was required to refund the
security deposit at the time of vacant possession being handed over and that
if the licensor refuses to do so, the licensee is entitled to retain physical
possession.
(ii) ICRA Limited v. Associated Journals Limited and Ors. (2008)
ILR 1 Delhi 684, wherein, at paragraph 21, the Delhi High Court concluded
that once the lessee offers to hand over possession and the lessor refuses to
take possession, the lessee would be entitled to remain in possession.
(iii) N.N.Global Mercantile Private Limited and others v. INDO
Unique Flame Limited and others (2021) 4 SCC 379, wherein, at paragraph
36.1, the Hon'ble Supreme Court held that the Arbitral Tribunal is obligated
by Section 33 of the Stamp Act to impound an insufficiently stamped
instrument and direct the parties to pay the requisite stamp duty and penalty,
if any, and obtain an endorsement from the Collector concerned.
12. These contentions were refuted by the first Respondent. The
first Respondent submitted that a sum of Rs.39,51,000/- was due and
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payable by the Petitioner towards rental arrears, amenities charges,
maintenance charges, electricity charges, diesel charges, etc. as of August
2009. Indeed, the first Respondent asserted that the Petitioner also admitted
in contemporaneous correspondence that there were dues towards rent,
amenities, maintenance, etc. By referring to the communication dated
26.08.2009 from the Petitioner, the first Respondent pointed out that the
payments specified therein were not made by the Petitioner. The first
Respondent further submitted that the Lease Agreement was for an
aggregate period of nine years. Therefore, the Lease Agreement was
required to be adequately stamped and registered. Since it was admittedly
not adequately stamped or registered, no rights were created in favour of
the parties by such Lease Agreement. As regards the Amenities Agreement,
the first Respondent contended that the said Agreement was supplementary
to the Lease Agreement. Therefore, it did not have an existence
independent of the Lease Agreement. Since the Lease Agreement was void,
the Amenities Agreement, which was supplementary thereto and co-
terminus therewith, was also void.
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13. The first Respondent clarified that physical possession of the
property was taken by her only on or about 26.07.2017 pursuant to orders
passed by this Court. At such time, by way of security towards the refund
claim, the first Respondent made a deposit of a sum of Rs.12 lakhs. The
first Respondent contended that the Award is certainly not in violation of
public policy and cannot be termed as patently legal or as shocking the
conscience of the Court. As regards the conclusion of the Arbitral Tribunal
that it derived authority from the order of the Court, the first Respondent
pointed out that the parties had agreed, under the Lease Agreement, to
arbitration by a sole arbitrator to be mutually agreed upon by the parties and
under the Amenities Agreement to arbitration in Mumbai by a panel of three
arbitrators, whereas the Court referred the dispute to the Nani Palkhivala
Foundation. In effect, it was contended that the reference of the dispute for
arbitration was not as per the relevant clause of the Lease Agreement but on
the basis of the order of this Court.
14. Upon considering the rival submissions, several questions
arise for consideration. The first question is whether the Arbitral Tribunal
was justified in disregarding the Lease Agreement. This question was
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considered and dealt with under Issues 1 and 2 by the Arbitral Tribunal.
Upon examining the Lease Agreement, there is no doubt that the term of
lease is an aggregate period of nine years. Therefore, as per Section 107 of
the Transfer of Property Act, 1882, read with Section 17 of the Registration
Act, the document required compulsory registration. The said document
bears stamp duty of only Rs.300/-, which is not adequate for a nine year
lease under the Stamp Act. Therefore, the stamp duty is also inadequate.
Consequently, the Arbitral Tribunal was justified in concluding that no
rights in respect of the immovable property can be founded on the Lease
Agreement. Learned counsel for the Petitioner contended that the Lease
Agreement could be relied upon for collateral purposes as per the proviso to
Section 49 of the Registration Act. However, from the pleadings and the
Award, it does not appear that such contention was raised before the Arbitral
Tribunal. In any event, the handing over of vacant possession is not
collateral to a lease. Consequently, the refund of security deposit, which is
to be effected simultaneously with the handing over of vacant possession,
cannot be looked at in isolation and construed as collateral. The contention
of the Petitioner that the Lease Agreement was exhibited in evidence and,
therefore, cannot be eschewed may be a valid contention from the
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perspective of the Stamp Act, but does not cure the defect of non-
registration under the Registration Act or avert the consequences thereof.
15. The next aspect to be considered is the conclusion of the
Arbitral Tribunal on the Amenities Agreement. The subject matter of the
Amenities Agreement is the provision of the amenities listed in Annexure-1
thereto. As indicated earlier, these amenities included, inter alia, electricity
connection, diesel generator, electricity fittings, fixtures, furniture, AC
Units, router. The Amenities Agreement was clearly not a document by
which interest in immovable property was created, declared, transferred,
limited or extinguished. It also does not fall within the scope of any of the
clauses in sub-section (1) of Section 17 of the Registration Act. Therefore,
an agreement of this nature did not require compulsory registration under
Section 17 of the Registration Act. The said Agreement bears the stamp
duty of Rs.300/-, which is adequate because an agreement of this nature
would fall within the residuary entry in Article 5 of Schedule I of the Stamp
Act. On this issue, the Arbitral Tribunal committed an error by treating it in
the same manner as the Lease Agreement. Hence, the material clauses of the
Amenities Agreement should be examined so as to determine if the non-
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consideration of the same vitiates the Award. Clause 1 of the Amenities
Agreement provided for payment of a sum of Rs.4,50,000 per month as
charges for the provision of amenities and services and Clause 2 stipulated
that such charges shall be paid on or before the 7th of each month. Clause 4
of the Amenities Agreement deals with the security deposit and is, therefore,
of significance. The said Clause is as under:
''4. An interest free refundable Security
deposit amounting to Rs.27,00,000/- (Rupees Twenty
Seven Lakhs only) shall be payable to the Lessor upon
the signing of the agreement. The security deposit
will be held by the Lessor during the said leave and
licence agreement and this amenities agreement and
shall be returned upon the expiration or earlier
termination of the agreement after the deduction of
any reasonable dues or damages if any arising out of
and in pursuance of the Leave and Licence agreement.
The Lessor shall refund security deposit on the date
of handing over of keys/Vacant possession of the
demised premises by the lessee either by Demand
Draft/ Current Dated cheque. In case if the lessee
gives written communication before 5 days of handing
over of the keys / Vacant possession, then the lessor
shall issue a Post dated cheque(PDC) with respect to
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last date of termination of the lease agreement.
Furthermore, the Lessor shall pay an interest @ 30%
per annum on the security deposit for such period the
security deposit is not refunded to the Lessee in case
of such termination.'' (emphasis added).
16. On perusal of Clause 4, it is evident that a security deposit of
Rs.27 lakhs was specified as payable by the Petitioner. The said clause
further specified that the security deposit should be refunded upon the
expiry or termination of the Agreement, after deducting reasonable dues or
damages arising out of the Lease Agreement, on the date of handing over
the keys / vacant possession of the demised premises by the lessee. In
addition, it provided for the payment of interest at 30% per annum on the
security deposit if the same is not refunded.
17. The question whether the Award is liable to be interfered with
on account of non-consideration of the Amenities Agreement is examined
next. As indicated above, as a consequence of disregarding the Amenities
Agreement, the Arbitral Tribunal did not take into account the clauses
thereof, including Clause 4. On this issue, it should be noticed that even de
hors the Lease Agreement and the Amenities Agreement, the amounts
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payable monthly towards rent and amenities charges, and the amounts
deposited by way of security deposit are not in dispute. For instance, the
communication dated 16.09.2009 from the Petitioner sets out these amounts
with no room for ambiguity. Besides, the communication dated 26.08.2009
from the Petitioner clearly indicates that there are dues towards rent,
amenities, maintenance, etc. from June 2009 onwards. In this factual
context, the Arbitral Tribunal examined whether possession was handed
over by the Petitioner especially while dealing with Issues 5 and 6 by
looking at the correspondence between the parties. Upon considering such
evidence, the Arbitral Tribunal recorded, in relevant part, as under while
dealing with Issue 5:
“ ....Copies of the correspondence filed as
Exhibits show the Respondent using the terms like
“ready to hand over”, “called upon to take over”,
etc. Even in his final written submission the
Respondent submitted that they “only held de jure
possession, they are not enjoying the benefits of the
premises”, etc. When it comes to immovable
property like a locked office premises, when the key
to the premises is still held by the tenant, it cannot
be said that proper possession has been handed over
to the landlord. Issue 5 is answered accordingly.”
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In this manner, the Arbitral Tribunal proceeded to enter a finding that the
Petitioner had not handed over possession and therefore continued to be
under an obligation to pay rent and amenities charges. These conclusions
were based on a reasonable appraisal of the documentary evidence on
record. Therefore, such conclusion does not warrant interference under
Section 34 of the Arbitration Act. Clause 4 of the Amenities Agreement
would have enured to the benefit of the Petitioner only if the Arbitral
Tribunal had concluded that the Petitioner had handed over or at least taken
all possible steps to hand over possession to the first Respondent. However,
the Arbitral Tribunal concluded that the Petitioner did not hand over
possession either by delivering physical possession or by handing over the
keys because of pending issues such as rental arrears, maintenance and
amenities charges arrears, etc. Consequently, the error committed by the
Arbitral Tribunal in not taking into account the Amenities Agreement does
not vitiate the Award. In other words, it cannot be construed as an illegality
which goes to the root of the case.
18. The Petitioner contended that the Arbitral Tribunal erred in
concluding that it derived authority and jurisdiction from the judgment of
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the Division Bench and not from the arbitration clause in the Lease
Agreement and Amenities Agreement. There is merit in this contention
inasmuch as the arbitration agreement is required to be treated as
independent of other clauses in an agreement as per Section 16(1)(a) of the
Arbitration Act and, as per clause (b) of the above Section, even if it is
concluded that the contract is invalid, it does not lead to the inference that
the arbitration clause is invalid. Nonetheless, the error on this count is a
non-sequitur because the Award cannot be interfered with merely because
the Arbitral Tribunal was under the misconception that it derived authority
only from the judgment of the Division Bench of this Court.
19. Another contention was raised that the Arbitral Tribunal
exceeded the scope of authority in directing payment of rent and amenities
charges in the post-termination period. This contention should be tested by
examining the arbitration clause in the Lease Agreement and Amenities
Agreement. Both Clause 45 of the Lease Agreement and Clause 10 of the
Amenities Agreement, which are the arbitration clauses, are wide and use
the expression “any dispute”. In addition, both use the expression
“howsoever arising”. In such context, it certainly cannot be concluded that
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the direction to pay rent and amenities charges in the post-termination
period is beyond the scope of reference or beyond jurisdiction.
20. This arbitration and even the Section 34 petition were prior to
Act 3 of 2016. Therefore, the law that applied prior to 23.10.2015 should be
applied. Under the then prevailing legal regime, an arbitral award could be
interfered with if it conflicts with public policy, including on account of
being patently illegal. While the Petitioner contended that the Award is
liable to be interfered with by citing Delhi Development Authority v. R.S.
Sharma and Company, New Delhi (2008) 13 SCC 80 and Associate Builders
v. Delhi Development Authority (2015) 3 SCC 49, the said judgments
instruct that an award is patently illegal if it is so unfair and unreasonable
that it shocks the conscience of the Court. The Award in the case at hand
may contain errors in certain respects, but when viewed dholistically does
not qualify as being patently illegal or as shocking the judicial conscience.
Therefore, the Petitioner's challenge fails.
21. By the operative part of the Award, the Arbitral Tribunal
concluded that the first Respondent is entitled to set-off amounts due and
payable towards rent and amenities charges, at Rs.7,50,000/- per month,
from the security deposit of Rs.45 lakhs until the date of handing over of
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possession by the Petitioner to the first Respondent. Since the Award was
pronounced on 18.11.2013, it proceeded on the assumption that after
setting-off such amounts, a portion of the security deposit would be
refundable to the Petitioner. Accordingly, the balance of the security deposit
was directed to be paid by the first Respondent to the Petitioner herein.
However, the Petitioner challenged the Award before this Court, and did not
hand over physical possession until about 26.07.2017. As a corollary, the
rent and amenities charges would, in all likelihood, have exceeded the
security deposit, if computed at Rs.7,50,000 per month up to the date of
hand over, as indicated in the Award. This may result in a dispute which the
Award did not envisage or deal with. The Award also enables the parties to
institute separate proceedings as regards damages to the leased premises.
22. For reasons set out above, the Award, including the operative
part thereof, does not call for interference. Consequently, the first
Respondent is entitled to file an appropriate application for payment out of
the amounts deposited by the first Respondent as a condition for taking
possession. However, open issues such as claims or disputes in relation to
amounts due and payable by the Petitioner to the first Respondent towards
rental dues, amenities charges, maintenance charges,etc. after setting-off the
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entire security deposit or claims for damages may be dealt with by the
parties in accordance with law. O.P.No.171 of 2014 is disposed of on the
above terms without any order as to costs.
15.12.2021
Index :Yes
Internet :Yes
rrg
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SENTHILKUMAR RAMAMOORTHY J.
rrg
O.P.No.171 of 2014
15.12.2021
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