EVERGREEN LAND MARK PVT. LTD versus JOHN TINSON & COMPANY PVT. LTD. & ANR on 19 April 2022

1. Feeling aggrieved and dissatisfied with impugned judgment andorder dated 10.02.2022 passed by the High Court of Delhi at New Delhiin ARB.A. (Comm.) No.9/2022 under Section 37(2)(b) of the Arbitration& Conciliation Act, 1996 (hereinafter referred to as the “ArbitrationAct”), by which the High Court has dismissed the said appeal in whichthe appellant herein challenged order dated 05.01.2022 passed by theArbitral Tribunal in two applications filed by respondent No. 1 and 2herein under Section 17 of the Arbitration Act, seeking deposit of therental amount for 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 byrespondent 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. Thelease agreement came to be terminated by respondent No. 1 and 2 –original owners. The dispute with respect to the termination of leaseagreement is the subject matter before the Arbitral Tribunal. Before theArbitral Tribunal, respondent No. 1 and 2 filed two separate applicationsunder Section 17 of the Arbitration Act seeking deposit of the rentalamount due and payable for the period between March, 2020 toDecember, 2021. By way of an interim measure, in exercise of powersunder Section 17 of the Act, the Arbitrator vide order/orders dated05.01.2022 directed the appellant to deposit 100% of rental amount due

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Aand payable of the period between March, 2020 to December, 2021. Atthis stage, it is required to be noted that before the Arbitral Tribunal, itwas the case on behalf of the appellant that due to the Covid-19 Pandemic,there was a lockdown declared by the Government and therefore, therewas a complete closure/partial closure and therefore, invoking clause 29(Force Majeure) of the lease deed, the appellant disputed the liability toBpay the rental amount for the period during which there was a lockdown/complete closure/partial closure. Despite the above submissions, theArbitral Tribunal directed the appellant to deposit the rental amount fromMarch, 2020 onwardsand up to December, 2021. The Arbitral Tribunalalso passed an order that amount so deposited shall be kept in fixedCdeposit accounts. The operative portion of the order contained in para43 is as under: - “43.(a) The Respondent shall compute the arrears towards rentseparately in respect of each premises under lease at the agreedrate - Rs. 10,35,000/- per month (subject to applicable taxes) forDthe period from 01.05.2018 to 30.04.2021 and Rs. 11,90,250/- from01.05.2021 onwards in respect of leased premises of JTCPL andRs. 2,39,390/- per month (inclusive of GST) in respect of leasedpremises of BIET - for the period of default and pendency of thematter thus far, i.e. from March 2020 onwards for and up toDecember 2021, adjusting the amounts already paid (as perEdeclarations made before this tribunal), deducting the TDS as perlaw, and communicate the same to the respective Claimants withina week of this order.

(b) The amounts of money equivalent to the arrears computed asabove shall be deposited by the Respondent in Fixed Deposit (FD)Faccounts - separately in relation to the respective Claimants - in apublic sector Bank, initially for a period of six months with provisionof auto-credit of Interest and periodical auto-renewal within fourweeks of this order.”

2.1 Feeling aggrieved and dissatisfied with the order passed byGthe Arbitral Tribunal by way of an interim arrangement in exercise ofpowers under Section 17 of the Arbitration Act, the appellant preferredan appeal before the High Court under Section 37(2)(b) of the ArbitrationAct. By the impugned judgment and order, the High Court has dismissedthe said appeal and has confirmed the interim order passed by the ArbitralTribunal passed in exercise of powers under Section 17 of the ArbitrationHAct. Hence, the present appeal.

3. Ms. Aastha Mehta, learned counsel appearing on behalf of theappellant has vehemently contended that in the present case, both, ArbitralTribunal as well as the High Court have not at all considered thesubmissions on behalf of the appellant on clause 29 of the agreementand the aspect of force majeure as prayed on behalf of the appellant. Itis submitted by Ms. Mehta that even the Arbitral Tribunal has specificallyobserved in para 39 of the order that at this stage, the Arbitral Tribunal isnot deciding anything on the import and effect of the force majeureclause (No. 29) contained in the lease deed. It is contended that thereforewhen the liability to pay the rentals during the lockdown period whileapplying the force majeure clause is seriously disputed by the appellant– lessee, such an order to deposit 100% rental amount by way of aninterim measure under Section 17 of the Arbitration Act, ought not tohave been passed by the Arbitral Tribunal.

3.1 It is further submitted by Ms. Mehta that even the learnedArbitral Tribunal has also observed that there is no evidence showingthat the appellant is disposing of any part of its property much less removingitself or its assets out of India so as to create a possibility of frustratingthe monetary award that may be passed in favour of the claimants uponconclusion of arbitration proceedings within the scope of Order XXXVIIIof CPC. It is submitted that therefore, in absence of such evidence theimpugned order which can be said to be akin to Order XXXVIII Rule 5could not have been passed unless the conditions while invoking powersunder Order XXXVIII Rule 5 are satisfied. Reliance is placed on thedecision of this Court in the case of Raman Tech. & Process Engg.Co. & Anr. Vs. Solanki Traders; (2008) 2 SCC 302. While relyingupon the decision of this Court in the case of Adhunik Steels Ltd. Vs.Orissa Manganese and Minerals (P) Ltd.; (2007) 7 SCC 125, it isurged by Ms. Mehta, learned counsel appearing on behalf of the appellantthat as held by this Court,even while passing an order under Section 9 ofthe Arbitration Act, the court has to bear in mind and consider principlesapplicable for exercise of general power to grant an interim injunctionunder Order XXXIX of CPC.

3.2 It is contended by Ms. Mehta, learned counsel appearing onbehalf of the appellant that apart from the fact that there was a completeclosure due to complete lockdown for the period between 22.03.2020 to09.09.2020 and thereafter for the period between 19.04.2021 to28.06.2021 and the period between 11.01.2022 to 27.01.2022 due to the AB

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Apandemic, for the remaining period the appellant was allowed to run theRestro/Bar with only 50% capacity and that too, from 12:00 noon to10:00 pm. It is submitted that therefore, clause 29 of the agreement(force majeure clause) shall be applicable. It is submitted that the appellantcould not use the rented premises for the aforesaid period either fullyand/or partially due to Act of God and which was beyond the control ofBthe appellant. It is submitted that therefore, the force majeure clausecontained in clause 29 of the agreement shall be applicable. It is urgedthat whether in the facts and circumstances of the case, the principle offorce majeure contained in clause 29 is applicable or not is yet to beconsidered by the Arbitral Tribunal at the time of the final adjudicationCand therefore, the Arbitral Tribunal has committed an error in directingthe appellant to pay the full rental amount for the aforesaid period, byway of interim measure.

3.3 Ms. Mehta, learned counsel appearing on behalf of theappellant has also submitted that it is not that the appellant has not paidDany amount at all and/or that the intention of the appellant is to defraudthe landlords. It is contended that the dispute raised by the appellant is abonafide dispute. It is pointed out that undisputedly during the pendencyof the arbitration proceedings, the appellant itself had paid a substantialamount towards rentals of the two rented premises. That an amount of Rs. 87,64,133.76/- has been paid towards rentals for the period fromEOctober, 2020 to March, 2021 and July, 2021 to December, 2021. Theappellant had also incurred other over head expenses, TDS dues, electricityand water charges. That even during the lockdown period, the appellantpaid wages to its employees. Therefore, it will be too harsh on theappellant to pay the entire rental amount for the period between March,F2020 to December, 2021, as per the order passed by the learned ArbitralTribunal confirmed by the High Court is the submission of the learnedcounsel for the appellant.

4. The present appeal is opposed by Ms. Shyel Trehan, learnedcounsel appearing on behalf of the respondents. It is contended that inGthe facts and circumstances of the case no error has been committed bythe learned Arbitral Tribunal in directing the appellant to deposit the entireamount which is admittedly due and payable by the appellant. It is pointedout that on one hand, the appellant has continued to remain in possessionof the leased properties and at the same time, he is not paying the rentalamount. It is submitted that therefore, the learned Tribunal has rightlyH

passed an order by way of an interim measure directing the appellant todeposit the rental amount due and payable under the lease agreement.

4.1 According to learned counsel for the respondents neither theprinciples applicable under Order XXXVIII Rule 5 nor Order XXXIXRule 1 are appliable in case of a direction issued by way of an interimmeasure, as in the instant case, directing the lessee to deposit the rentalamount 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 offorce majeure would not apply as the appellant – lessee continued toremain in possession of the leased premises. It is submitted that none ofthe decisions relied upon by the counsel appearing on behalf of theappellant, is applicable.

4.3 It is pointed out that as rightly observed by the High Court, thebusiness of the appellant may have been impacted due to the outbreakof Covid-19 pandemic but that may not absolve the appellant from itscontractual obligations to pay the lease rent. It is submitted that so longthe appellant continues to occupy the premises, the liability of the appellantto pay the rental amount continues. It is urged that no error has beencommitted by the Arbitral Tribunal by directing the appellant to depositthe 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 therespective parties at length.

6. At the outset, it is required to be noted that the dispute is withrespect to the rental amount for the period between March, 2020 toDecember, 2021, for which the Arbitral Tribunal has directed the appellantto deposit while passing the order by way of an interim measure on theapplications under Section 17 of the Arbitration Act. The liability to paythe lease rental for the period between March, 2020 to December, 2021is seriously disputed by the appellant by invoking the force majeureprinciple contained in clause 29 of the lease agreement. It is the case onbehalf of the appellant that for a substantial period there was a totalclosure due to lockdown and for the remaining period the appellant wasallowed with 50% capacity and therefore, the force majeure principlecontained in clause 29 shall be applicable. When the same was submittedbefore the Arbitral Tribunal, no opinion, even a prima facie opinion onthe aforesaid aspect was given by the Arbitral Tribunal. In para 39, it is AB

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Aobserved that “it would not be fair at this stage of the proceedings, whereevidence is yet to be adduced by the parties in support their rivalcontentions on the issues that arise, to record any definitive opinion onthe import and effect of the force majeure clause (clause no.29) containedin the lease deed”. Therefore, applicability of the force majeure principlecontained in clause 29 is yet to be considered by the Arbitral Tribunal atBthe time of final adjudication. Hence, the liability to pay the rentals forthe period during lockdown is yet to be adjudicated upon and consideredby the Tribunal. Therefore, no order could have been passed by theTribunal by way of interim measure on the applications filed under Section17 of the Arbitration Act in a case where there is a serious dispute withCrespect to the liability of the rental amounts to be paid, which is yet to beadjudicated upon and/or considered by the Arbitral Tribunal. Thus, nosuch order for deposit by way of an interim measure on applicationsunder Section 17 of the Arbitration Act could have been passed by theTribunal. However, at the same time, the aforesaid can be consideredonly for the period of complete closure due to lockdown. As per theDavailable record, there was complete closure for the period between22.03.2020 to 09.09.2020; for the period between 19.04.2021 to28.06.2021 and for the period between 11.01.2022 to 27.01.2022 and forthe remaining period the appellant was allowed to run the Restro/Barwith 50% capacity. The appellant will therefore have to deposit the entireErental amount except the period for which there was complete closuredue to lockdown. As the applicability of force majeure principle (clause29) is yet to be considered at least, for the period during the completeclosure, it would not be justified to direct the appellant to deposit therental amount for the said period of complete closure by way of aninterim measure, pending final adjudication.F

7. In view of the above and for the reasons stated above, thepresent appeal succeeds in part. The order passed by the Arbitral Tribunalpassed in applications under Section 17 of the Arbitration Act, directingthe appellant to deposit the entire rental amount for the period betweenMarch, 2020 to December, 2021, confirmed by the High Court by theGimpugned judgment and order, is modified and it is directed that theappellant to deposit the entire rental amount for the period other than theperiod during which there was complete lockdown i.e., 22.03.2020 to09.09.2020 and for the period between 19.04.2021 to 28.06.2021.However, non-deposit of the rental amount for the aforesaid period duringHwhich there was a complete closure/lockdown shall be subject to the ultimate outcome of the Arbitration Proceedings and the Arbitral TribunalAshall have to adjudicate and consider the principle of force majeurecontained in clause 29 as contended on behalf of the appellant inaccordance with law and on its own merits. All contentions which maybe available to either party are kept open to be considered by the learnedArbitral Tribunal. The learned Tribunal to adjudicate and consider theBaforesaid issue in accordance with law and on its own merits uninfluencedby the present order and observations by this Court in the present ordershall be treated to be confined to while deciding the applications underSection 17 of the Arbitration Act and the interim measure order in exerciseof powers under Section 17 of the Arbitration Act only, and the sameshall not have any bearing on the final adjudication on the liability to payCthe rentals even for the aforesaid period. The balance amount as per thepresent order shall be deposited by the appellant as observed by thelearned Arbitral Tribunal in para 43(b) of interim order. The learnedTribunal to conclude the arbitration proceedings at the earliest preferablywithin a period of nine months, subject to the co-operation of both theDparties. With this the present appeal is partly allowed to the aforesaidextent. There shall be no order as to costs.

Devika Gujral

(Assisted by : Mahendra Yadav, LCRA)

Appeal partly allowed.

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