Well Reasoned Award Cannot Be Interfered With Under Section 37 Of Arbitration Act: Delhi High Court

Brief Facts

This Appeal has been filed by Aktivortho Private Limited earlier known as M/s International Orthopedic Rehabilitation and Prevention (India) Private Limited [hereinafter referred to as the “Appellant/Lessee”] under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 [hereinafter referred to as the “Arbitration Act”] impugning a judgment passed by the learned District Judge Commercial Court-03, West, Tis Hazari, Delhi dated 29.01.2024 in O.M.P. (COMM.) 19/2023 [hereinafter referred to as “Impugned Order”].

Under and by virtue of a registered Lease Deed dated 18.03.2015 [hereinafter referred to as the “Lease Deed”], the Appellant/Lessee took on lease the Premises from the Respondents/Lessors.The tenancy commenced and the Appellant/Lessee carried out its fit out in the Premises and commenced its business from the Premises. The Appellant/Lessee made rental payments until February, 2017 after which the rental payments were stopped.

Disputes arose between the parties and on 07.04.2017, the Appellant/Lessee issued a legal notice terminating the lease owing to defaults of Lease Deed by the Respondents/Lessors. The Appellant/Lessee contended that the Respondents/Lessors failed to honour the terms of the Lease Deed and on the ground of non-performance, terminated the Lease Deed between the parties.

A suit for recovery was filed by the Respondents/Lessors against the Appellant/Lessee in the Court of learned District Judge at Tis Hazari Courts, Delhi. By an order dated 20.12.2018, pursuant to an Application filed under Section 8 of the Arbitration Act by the Appellant/Lessee and with the consent of both the parties, the Court appointed the Sole Arbitrator to adjudicate disputes between the parties.

The Sole Arbitrator passed an Arbitral Award on 08.08.2022, whereby it directed the Appellant/Lessee to make payment of rent for the months of March, 2017 to May, 2017 and additionally directed the payment of six months rent in lieu of the lock-in period with interest at the rate of 9% per annum from 01.06.2017 onwards, along with costs of litigation at the rate of Rs. 75,000/-.

An amended award was passed by the Sole Arbitrator on 17.03.2023 whereby the security deposit amount of Rs. 21,30,000/- was directed to be adjusted in the amounts due to the Respondents/Lessors.

By the Impugned Order, the learned Commercial Court dismissed the Petition under Section 34 of the Arbitration Act filed by the Appellant/Lessee and held that vide the said Petition, the Appellant/Lessee had sought nothing but re-appreciation of the evidence.

Contentions

The appellant/lessee submitted that Clause 1.5 of the Lease Deed which provided for a six month notice of termination, at the end of the lock-in period was misconstrued by the Sole Arbitrator and was only applicable on the completion of the lock-in period. Since, the Lease Deed was terminated during its tenure, the applicability of Clause 1.5 of the Lease Deed did not arise.

That the Sole Arbitrator has failed to distinguish between “default” and “breach” and has completely overlooked that the Respondents/Lessors had committed defaults by failing to insure the Premises, pay annual maintenance charges for the lift despite promising the same.

That the security deposit was interest free only till the time the Appellant/Lessee was in possession of the Premises and thereafter, holding on to the same would accrue interest which was not awarded by the Sole Arbitrator.

Per contra, the respondents/lessor submitted the Appellant/Lessee stopped paying rental in March, 2017 and thereafter vacated the Premises on 31.05.2017 in complete contravention of the terms of the Lease Deed. No communication of any kind whatsoever was issued by the Appellant/Lessee prior to its legal notice dated 07.04.2017.

That the issues raised by the Appellant/Lessee were only raised to avoid their obligation to make rental payments and payment of other dues during the tenure of the Lease Deed including payment with respect to the lock-in period.

Court's Analysis

The court noted that Clause 7.1 of the Lease Deed set out that the Appellant/Lessee shall be at liberty to terminate the Lease Deed, at any time, after the expiry of 36 months with a written notice of 6 months. It also provided that the Appellant/Lessee may terminate the Lease Deed with immediate effect if the Respondents/Lessors are in breach of Clause 6.5 of the Lease Deed and fails to remedy such breach within 15 days of receiving the written notice from the Appellant/Lessee.

The court further noted that the Lease Deed between the parties commenced on 23.05.2015 and the Appellant/Lessee continued in occupation of the Premises till 31.05.2017, the breaches/defaults complained by the Appellant/Lessee were to be communicated in writing by the Appellant/Lessee. However, instead, the Appellant/Lessee stopped the rental payment after February 2017 and sent the legal notice dated 07.04.2017 to the Respondents/Lessors.

The court noted that the Lease Deed was entered into by the Appellant/Lessee for a term of 3 years with a renewal clause for two additional term of three years each i.e., 9 years, with a lock-in period of 36 months. Prior to the expiry of the lock-in period, a notice to determine the lease was sent by the Appellant/Lessee alleging a breach of the terms of the lease.

The termination was not in accordance with the terms of the Lease Deed. The disputes between the parties were adjudicated and after detailed evidence, a finding was reached that there was no breach committed by the Respondents/Lessors so as to entail a termination, the court noted.

The court further noted that So far as concerns the issue of interest not being awarded on the security deposit, the same was also examined by the Sole Arbitrator and it was held that the Respondents/Lessors did not illegally retain the security deposit and that Clause 3.7 of the Lease Deed required the Respondents/Lessors to return the security deposit but only after adjusting the arrears of rent and amounts due therefore the Respondents/Lessors was justified in holding the security amount. Thus, no interest on this amount was awarded to the Appellant/Lessee.

The claim of the Respondents/Lessors was allowed to the extent of arrears of 3 months' rent and the 6 months rental in lieu of 11 months and 22 days duration of lock-in period that remained in terms of the Lease Deed, along with interest and costs. The findings as discussed above, are in terms of the Lease Deed between the parties and after examining the evidence placed before the Sole Arbitrator and do not merit any interference by this Court, the court noted.

The court further analyzed of scope of interference under section 37 of the Arbitration Act. The court referred to the Supreme Court judgment in PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin & Ors, 2021 wherein it was held that the scope of interference in an Arbitral Award under Sections 34 and 37 of the Arbitration Act is limited. Amongst the grounds provided in the Arbitration Act for interference with Arbitral Award is patent illegality, which is limited to situations where the findings of the Sole Arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked.

The court while referring to the Supreme Court judgment in Hindustan Construction Co. Ltd. v. NHAI, 2024 noted that judges, by nature, may incline towards using a corrective lens, however, under Section 34 of the Arbitration Act, this corrective lens is inappropriate especially under Section 37 of the Arbitration Act. It was held that the error in interpreting a Contract is considered an error within its jurisdiction. Therefore, judicial interference should be avoided unless absolutely necessary.

The court concluded that the Sole Arbitrator after appreciating and examining the evidence placed before it, reached a conclusion which is plausible and does not merit any interference. Accordingly, the present appeal was dismissed.

Case Title: Aktivortho Private Limited Versus Dilbagh Singh Sachdeva And Other

Case Reference: FAO (COMM) 67/2024

Judgment Date: 20/11/2024

For the Appellant : Mr. Pradeep Dahiya, Adv. with Ms. Mahima Benipuri, Adv.

For the Respondents: Mr. Ashok Kumar Sharma, Adv. With Mr. Kewal Krishan and Mr. Abhinav Kumar, Advs.

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