Construction Of Contract's Terms Is Task Of Arbitrator, Cannot Be Interfered With U/S 34 Unless Construction Is Unreasonable: Madras HC

Brief Facts

This is an Appeal under Section 37 of the Arbitration and Conciliation Act, 1996, (hereinafter 'the Act') against the order dated 06.09.2021 passed by the learned Single Judge of this Court in O.P.No.903 of 2019, whereby the application preferred by the appellant herein under Section 34 of the Act for setting aside the award dated 06.08.2019 of the Sole Arbitrator was rejected.

A License Agreement dated 29.11.2010 was execited between the claimant and the respondents in which a license was granted to the claimant to carry out the ground handling activities in the Chennai Airport.

Ex.C-2 dated 05.01.2011 is the Subordinate License Agreement for lease of space/land/facilities accorded to the Claimant for office/maintenance and parking of its equipments within the airport area. The said agreement was stated to have been subsequently renewed under Ex.C-3 dated 23.06.2014.

The dispute arose when the Respondents issued the Circular Letter under Ex.C-5 dated 20.11.2014 by which the Lease Rental/License fee rates were revised with effect from 01.10.2014 in an astronomical manner.

The sole Arbitrator after hearing the respective parties pronounced the award dated 06.08.2019.

The award so made by the learned sole Arbitrator was challenged by the claimant under Section 34 of the 1996 Act before the Commercial Division. A vast variety of contentions urged on behalf of the parties were duly considered by the Court and the relevant points were answered in favour of the respondents and thereby, the award was upheld while rejecting the application under Section 34

Contentions

The appellant submitted that the award passed by the sole Arbitrator dated 06.08.2019 as well as the impugned order dated 06.09.2021 rejecting the application under Section 34 of the Act in O.P.No.903 of 2019 suffers from patent illegality, thus it is liable to be set aside.

• That under Clause 26 of Ex.C-1 dated 29.11.2010, it is stipulated that the Claimant as a licensee would only be required to pay rental for built up space and land as applicable from time to time subject to 7.5% annual escalation or as determined by Airport Authority of India from time to time other than electricity and water charges, the claim for escalation with compounded effect itself was not justified and the Claimant did not raise any objection to it, as it found to be a trivial one..
• That the land which was given on lease to the Claimant was a barren land without any construction and the office space was comparatively low in market value and the argument that the other licensees accepted the increase cannot be a ground for insisting such astronomical increase by the Claimant and the Respondents' claim for astronomical increase was also hit by the principle of legitimate substantive expectation of the Claimant.

Per contra, the respondents submitted that the dispute as raised before this Tribunal is not maintainable, as the Claimant cannot be meted out with special treatment when the revision of Land Lease Rent was applicable to all the licensees and when all the licensees accepted the same and continue to pay at the revised rates, the Claimant alone cannot be given a concession and that would result in violation of Article 14 of the Constitution.

• That since the award letter, the agreements and the general terms and conditions form part of the contract they are to be interpreted cumulatively and the Claimant cannot be permitted to dismember a particular clause or word to support its stand and the principle of contra proferentem does not apply to the interpretation of commercial contract apart from the fact that there was no ambiguity as claimed by the Claimant.
• That the Airport premises occupied by the Claimant cannot be compared with other premises in the locality, having regard to the special nature of the Airport premises and therefore the reliance placed upon by the Claimant on the rental values prevailing in and around Airport premises cannot be taken into account for the purpose of comparison.
• That the theory of legitimate expectation cannot be pleaded as against the terms of the concluded commercial contract, where the terms of the contract alone will be binding. Reliance was placed upon the decision of C.V.Enterprises Vs. Braithwaite & Co. Ltd. (1984).

Court's Analysis

The court, at the outset, referred to the findings of the learned arbitrator wherein it was observed that the claimant with its eyes wide open having understood the terms and conditions of the contract under Ex.C.2 with its full implication on its enforcement and the financial impact to be suffered.

The arbitrator further noted that having agreed to such terms and conditions contained therein the claimant has no right in law to question the relevant provision relating to fixation of license fee and its revision from time to time at this distant point of time. Therefore, the Clauses 4, 8 & 10 for upward revision of license fee in Ex.C.2 is not opposed to any law in force or public policy or in conflict with the legal principle of any concluded contract.

The arbitrator had further held that therefore, it not open to the claimant to question the terms and conditions, in particular the provisions relating to fixation of license fee and its revision from time to time.

The arbitrator further refuted the contention with respect to promissory estoppel while referring to the Supreme Court judgment in Ester Industries Ltd., Vs. State Electricity Board and Others. (1996) wherein it was held that since there exists a contract duly executed under law between the petitioner and the Board which binds them, unless it is revised, the question of promissory estoppel does not arise.

The Arbitrator further observed that since it is a policy decision of the respondents as a State Authority coming within the four corners of Article 12 of the Constitution seeking for enhancement of the base rent for the lands allotted to the claimant in the Airport premises, it will not in any way prevent the respondents Authority from enforcing its right, after due consideration of various factors.

Having noted the findings of the arbitrator, the court in the present appeal observed that the learned Arbitrator has passed the award on detailed scrutiny of facts, appreciating the evidence and in the context of the contemporary legal situation. The views of the learned sole Arbitrator cannot be found fault. The challenge to the impugned award is purely on merits which is also impermissible and there is no ground to state that the award is patently illegal and against the public policy of Indian Law.

The court concluded that no ground for challenge under Section 34 of the Act was made out in relation to the award passed by the learned Sole Arbitrator. Hence, the Hon'ble Single Judge of this Court has been right in confirming the arbitral award. Accordingly, the present appeal was dismissed.

Case Title: M/s.Bhadra International (India) Pvt. Ltd Vs. Airports Authority of India and Ors.

Citation: 2024 LiveLaw (Mad) 424

Case Reference: O.S.A.(CAD).No.27 of 2022

Judgment Date: 30/10/2024

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