Evergreen Land Mark Pvt. Ltd. vs John Tinson And Company Pvt. Ltd.

Evergreen Land Mark Pvt. Ltd. ..Appellant (S)

Versus

John Tinson & Company Pvt. Ltd. & Anr. ..Respondent (S)

JUDGMENT

M. R. Shah, J.

1. Feeling aggrieved and dissatisfied with impugned judgment

and order dated 10.02.2022 passed by the High Court of

Delhi at New Delhi in ARB.A. (Comm.) No.9/2022 under

Section 37(2)(b) of the Arbitration & Conciliation Act, 1996

(hereinafter referred to as the “Arbitration Act”), by which

the High Court has dismissed the said appeal in which the

appellant herein challenged order dated 05.01.2022

passed by the Arbitral Tribunal in two applications filed by

Signature Not Verified respondent No. 1 and 2 herein under Section 17 of the Digitally signed by R Natarajan

Arbitration Act, seeking deposit of the rental amount for Date: 2022.04.19 16:53:45 IST Reason:

1

the period between March, 2020 and December, 2021, the

appellant herein – lessee has preferred the present appeal.

2. The dispute is with respect to two separate premises

owned by respondent No. 1 and 2 herein which were given

on lease to the appellant, who is running a Restaurant and

Bar in the premises in question. The lease agreement came

to be terminated by respondent No. 1 and 2 – original

owners. The dispute with respect to the termination of

lease agreement is the subject matter before the Arbitral

Tribunal. Before the Arbitral Tribunal, respondent No. 1

and 2 filed two separate applications under Section 17 of

the Arbitration Act seeking deposit of the rental amount

due and payable for the period between March, 2020 to

December, 2021. By way of an interim measure, in

exercise of powers under Section 17 of the Act, the

Arbitrator vide order/orders dated 05.01.2022 directed the

appellant to deposit 100% of rental amount due and

payable of the period between March, 2020 to December,

2021. At this stage, it is required to be noted that before

the Arbitral Tribunal, it was the case on behalf of the

appellant that due to the Covid­19 Pandemic, there was a

2 lockdown declared by the Government and therefore, there

was a complete closure/partial closure and therefore,

invoking clause 29 (Force Majeure) of the lease deed, the

appellant disputed the liability to pay the rental amount

for the period during which there was a

lockdown/complete closure/partial closure. Despite the

above submissions, the Arbitral Tribunal directed the

appellant to deposit the rental amount from March, 2020

onwards and up to December, 2021. The Arbitral Tribunal

also passed an order that amount so deposited shall be

kept in fixed deposit accounts. The operative portion of the

order contained in para 43 is as under: ­

“43.(a) The Respondent shall compute the arrears towards rent separately in respect of each premises under lease at the agreed rate ­ Rs. 10,35,000/­ per month (subject to applicable taxes) for the period from 01.05.2018 to 30.04.2021 and Rs. 11,90,250/­ from 01.05.2021 onwards in respect of leased premises of JTCPL and Rs. 2,39,390/­ per month (inclusive of GST) in respect of leased premises of BIET ­ for the period of default and pendency of the matter thus far, i.e. from March 2020 onwards for and up to December 2021, adjusting the amounts already paid (as per declarations made before this tribunal), deducting the TDS as per law, and communicate the same to the respective Claimants within a week of this order.

(b) The amounts of money equivalent to the arrears computed as above shall be deposited by the Respondent in Fixed Deposit (FD) accounts ­ separately in relation to the respective Claimants ­ in a public sector Bank, initially for a period of six months with provision of auto­

3 credit of Interest and periodical auto­renewal within four weeks of this order.”

2.1 Feeling aggrieved and dissatisfied with the order passed by

the Arbitral Tribunal by way of an interim arrangement in

exercise of powers under Section 17 of the Arbitration Act,

the appellant preferred an appeal before the High Court

under Section 37(2)(b) of the Arbitration Act. By the

impugned judgment and order, the High Court has

dismissed the said appeal and has confirmed the interim

order passed by the Arbitral Tribunal passed in exercise of

powers under Section 17 of the Arbitration Act. Hence, the

present appeal.

3. Ms. Aastha Mehta, learned counsel appearing on behalf of

the appellant has vehemently contended that in the

present case, both, Arbitral Tribunal as well as the High

Court have not at all considered the submissions on behalf

of the appellant on clause 29 of the agreement and the

aspect of force majeure as prayed on behalf of the

appellant. It is submitted by Ms. Mehta that even the

Arbitral Tribunal has specifically observed in para 39 of

4 the order that at this stage, the Arbitral Tribunal is not

deciding anything on the import and effect of the force

majeure clause (No. 29) contained in the lease deed. It is

contended that therefore when the liability to pay the

rentals during the lockdown period while applying the

force majeure clause is seriously disputed by the appellant

– lessee, such an order to deposit 100% rental amount by

way of an interim measure under Section 17 of the

Arbitration Act, ought not to have been passed by the

Arbitral Tribunal.

3.1 It is further submitted by Ms. Mehta that even the learned

Arbitral Tribunal has also observed that there is no

evidence showing that the appellant is disposing of any

part of its property much less removing itself or its assets

out of India so as to create a possibility of frustrating the

monetary award that may be passed in favour of the

claimants upon conclusion of arbitration proceedings

within the scope of Order XXXVIII of CPC. It is submitted

that therefore, in absence of such evidence the impugned

order which can be said to be akin to Order XXXVIII Rule 5

5 could not have been passed unless the conditions while

invoking powers under Order XXXVIII Rule 5 are satisfied.

Reliance is placed on the decision of this Court in the case

of Raman Tech. & Process Engg. Co. & Anr. Vs. Solanki

Traders; (2008) 2 SCC 302. While relying upon the

decision of this Court in the case of Adhunik Steels Ltd.

Vs. Orissa Manganese and Minerals (P) Ltd.; (2007) 7

SCC 125, it is urged by Ms. Mehta, learned counsel

appearing on behalf of the appellant that as held by this

Court, even while passing an order under Section 9 of the

Arbitration Act, the court has to bear in mind and consider

principles applicable for exercise of general power to grant

an interim injunction under Order XXXIX of CPC.

3.2 It is contended by Ms. Mehta, learned counsel appearing

on behalf of the appellant that apart from the fact that

there was a complete closure due to complete lockdown for

the period between 22.03.2020 to 09.09.2020 and

thereafter for the period between 19.04.2021 to

28.06.2021 and the period between 11.01.2022 to

27.01.2022 due to the pandemic, for the remaining period

6 the appellant was allowed to run the Restro/Bar with only

50% capacity and that too, from 12:00 noon to 10:00 pm.

It is submitted that therefore, clause 29 of the agreement

(force majeure clause) shall be applicable. It is submitted

that the appellant could not use the rented premises for

the aforesaid period either fully and/or partially due to Act

of God and which was beyond the control of the appellant.

It is submitted that therefore, the force majeure clause

contained in clause 29 of the agreement shall be

applicable. It is urged that whether in the facts and

circumstances of the case, the principle of force majeure

contained in clause 29 is applicable or not is yet to be

considered by the Arbitral Tribunal at the time of the final

adjudication and therefore, the Arbitral Tribunal has

committed an error in directing the appellant to pay the

full rental amount for the aforesaid period, by way of

interim measure.

3.3 Ms. Mehta, learned counsel appearing on behalf of the

appellant has also submitted that it is not that the

appellant has not paid any amount at all and/or that the

7 intention of the appellant is to defraud the landlords. It is

contended that the dispute raised by the appellant is a

bonafide dispute. It is pointed out that undisputedly

during the pendency of the arbitration proceedings, the

appellant itself had paid a substantial amount towards

rentals of the two rented premises. That an amount of Rs.

87,64,133.76/­ has been paid towards rentals for the

period from October, 2020 to March, 2021 and July, 2021

to December, 2021. The appellant had also incurred other

over head expenses, TDS dues, electricity and water

charges. That even during the lockdown period, the

appellant paid wages to its employees. Therefore, it will be

too harsh on the appellant to pay the entire rental amount

for the period between March, 2020 to December, 2021, as

per the order passed by the learned Arbitral Tribunal

confirmed by the High Court is the submission of the

learned counsel for the appellant.

4. The present appeal is opposed by Ms. Shyel Trehan,

learned counsel appearing on behalf of the respondents. It

is contended that in the facts and circumstances of the

8 case no error has been committed by the learned Arbitral

Tribunal in directing the appellant to deposit the entire

amount which is admittedly due and payable by the

appellant. It is pointed out that on one hand, the appellant

has continued to remain in possession of the leased

properties and at the same time, he is not paying the

rental amount. It is submitted that therefore, the learned

Tribunal has rightly passed an order by way of an interim

measure directing the appellant to deposit the rental

amount due and payable under the lease agreement.

4.1 According to learned counsel for the respondents neither

the principles applicable under Order XXXVIII Rule 5 nor

Order XXXIX Rule 1 are appliable in case of a direction

issued by way of an interim measure, as in the instant

case, directing the lessee to deposit the rental amount due

and payable while the lessee is continued to be in

possession.

4.2 It is further submitted that in the present case the

principles of force majeure would not apply as the

appellant – lessee continued to remain in possession of the

9 leased premises. It is submitted that none of the decisions

relied upon by the counsel appearing on behalf of the

appellant, is applicable.

4.3 It is pointed out that as rightly observed by the High

Court, the business of the appellant may have been

impacted due to the outbreak of Covid­19 pandemic but

that may not absolve the appellant from its contractual

obligations to pay the lease rent. It is submitted that so

long the appellant continues to occupy the premises, the

liability of the appellant to pay the rental amount

continues. It is urged that no error has been committed by

the Arbitral Tribunal by directing the appellant to deposit

the rental amount for the period between March, 2020 and

December, 2021 and the same is rightly confirmed by the

High Court.

5. We have heard learned counsel appearing on behalf of the

respective parties at length.

6. At the outset, it is required to be noted that the dispute is

with respect to the rental amount for the period between

10 March, 2020 to December, 2021, for which the Arbitral

Tribunal has directed the appellant to deposit while

passing the order by way of an interim measure on the

applications under Section 17 of the Arbitration Act. The

liability to pay the lease rental for the period between

March, 2020 to December, 2021 is seriously disputed by

the appellant by invoking the force majeure principle

contained in clause 29 of the lease agreement. It is the

case on behalf of the appellant that for a substantial

period there was a total closure due to lockdown and for

the remaining period the appellant was allowed with 50%

capacity and therefore, the force majeure principle

contained in clause 29 shall be applicable. When the same

was submitted before the Arbitral Tribunal, no opinion,

even a prima facie opinion on the aforesaid aspect was

given by the Arbitral Tribunal. In para 39, it is observed

that “it would not be fair at this stage of the proceedings,

where evidence is yet to be adduced by the parties in

support their rival contentions on the issues that arise, to

record any definitive opinion on the import and effect of

the force majeure clause (clause no. 29) contained in the

11 lease deed”. Therefore, applicability of the force majeure

principle contained in clause 29 is yet to be considered by

the Arbitral Tribunal at the time of final adjudication.

Hence, the liability to pay the rentals for the period during

lockdown is yet to be adjudicated upon and considered by

the Tribunal. Therefore, no order could have been passed

by the Tribunal by way of interim measure on the

applications filed under Section 17 of the Arbitration Act in

a case where there is a serious dispute with respect to the

liability of the rental amounts to be paid, which is yet to be

adjudicated upon and/or considered by the Arbitral

Tribunal. Thus, no such order for deposit by way of an

interim measure on applications under Section 17 of the

Arbitration Act could have been passed by the Tribunal.

However, at the same time, the aforesaid can be

considered only for the period of complete closure due to

lockdown. As per the available record, there was complete

closure for the period between 22.03.2020 to 09.09.2020;

for the period between 19.04.2021 to 28.06.2021 and for

the period between 11.01.2022 to 27.01.2022 and for the

remaining period the appellant was allowed to run the

12 Restro/Bar with 50% capacity. The appellant will therefore

have to deposit the entire rental amount except the period

for which there was complete closure due to lockdown. As

the applicability of force majeure principle (clause 29) is yet

to be considered at least, for the period during the

complete closure, it would not be justified to direct the

appellant to deposit the rental amount for the said period

of complete closure by way of an interim measure, pending

final adjudication.

7. In view of the above and for the reasons stated above, the

present appeal succeeds in part. The order passed by the

Arbitral Tribunal passed in applications under Section 17

of the Arbitration Act, directing the appellant to deposit the

entire rental amount for the period between March, 2020

to December, 2021, confirmed by the High Court by the

impugned judgment and order, is modified and it is

directed that the appellant to deposit the entire rental

amount for the period other than the period during which

there was complete lockdown i.e., 22.03.2020 to

09.09.2020 and for the period between 19.04.2021 to

13 28.06.2021. However, non­deposit of the rental amount for

the aforesaid period during which there was a complete

closure/lockdown shall be subject to the ultimate outcome

of the Arbitration Proceedings and the Arbitral Tribunal

shall have to adjudicate and consider the principle of force

majeure contained in clause 29 as contended on behalf of

the appellant in accordance with law and on its own

merits. All contentions which may be available to either

party are kept open to be considered by the learned

Arbitral Tribunal. The learned Tribunal to adjudicate and

consider the aforesaid issue in accordance with law and on

its own merits uninfluenced by the present order and

observations by this Court in the present order shall be

treated to be confined to while deciding the applications

under Section 17 of the Arbitration Act and the interim

measure order in exercise of powers under Section 17 of

the Arbitration Act only, and the same shall not have any

bearing on the final adjudication on the liability to pay the

rentals even for the aforesaid period. The balance amount

as per the present order shall be deposited by the

appellant as observed by the learned Arbitral Tribunal in

14 para 43(b) of interim order. The learned Tribunal to

conclude the arbitration proceedings at the earliest

preferably within a period of nine months, subject to the

co­operation of both the parties. With this the present

appeal is partly allowed to the aforesaid extent. There shall

be no order as to costs.

…………………………………J. (M. R. SHAH)

…………………………………J. (B.V. NAGARATHNA) New Delhi, April 19, 2022.

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