Contract Which Is Renewable Based On 'Criteria Of Performance' Is Deemed Renewed Unilaterally After Criteria Is Met, Cannot Be Terminated: J&K HC

The Jammu and Kashmir High Court held that where renewal of contract is based on the criteria of performance, the contract is deemed to have to been extended, if the said criteria is met. It also held that courts cannot interfere with the interpretation given by an Arbitrator if the same is reasonable and not opposed to logic.

In this case, the Arbitrator was to determine legality of breach of agreement by interpreting the agreement-clause which said that “the agreement between the parties was compulsorily renewable after the expiry of first five years, if the sales remained satisfactory.”

The court observed that “what is satisfactory cannot be left to the whim and caprice of one party to the agreement. In the absence of any criteria relating to interpretation of this term, arbitrator had relied on other provisions of the agreement and concluded that if the sales are Rs.15 lacs or above in a month, the same would constitute 'satisfactory sales.”

Court said that this view, being plausible and possible, cannot be interfered with while exercising powers under Section 34 of the Arbitration Act.

Justice Sanjay Dhar said that considering the findings of the Arbitrator that the agreement was automatically renewed, the petitioner could not have unilaterally opened the premises and removed all the stock without informing the respondent, causing loss of stock and disruption in the business.

The court upheld the view of the arbitrator that said agreement was not a lease agreement but a business agreement as the petitioner was to take share of 4% of the gross sales made by the Respondent per month.

It was observed that “conduct of the petitioner, clearly points to the fact that he has somehow tried to dispossess the respondent from the premises in question with the help of Municipal Authorities under the garb of removal of rotten stocks from the premises”

The Court further said that it was clearly evident, that the petitioner was incharge of the said premises when the stock was removed from the premises and the burden was on the petitioner to explain as to what happened to the said stock.

The court noted that the petitioner has miserably failed to explain the same before the Arbitrator as well as before the instant court and therefore, award of compensation by the Arbitrator was completely justified.

The court observed that for this limited purpose of quantifying the damages for breach of the agreement, the same has to be deemed to be in operation for next five years. In that view of the matter, the respondent would be entitled to claim the loss of profits for the next five years.

BACKGROUND:

The petitioner is the owner of a five storied commercial building. An agreement was made between petitioner and respondent, giving the latter the space on the ground floor for setting up a departmental store.

The respondent was to pay 4% of the gross monthly sales to the petitioner and if sales were below ₹15 lakh per month, the respondent had to pay ₹30,000 plus 2% of gross sales.

The agreement was initially for 5 years and was renewable if the sales were satisfactory. The petitioner terminated the agreement citing unsatisfactory sales.

The matter was agitated before District Judge wherein status quo initially granted was later on vacated and thereafter the respondent invoked the arbitration clause under Arbitration Act. The Arbitrator declared the contract as renewed interpreting the “satisfactory sales' by extrapolating the value from the above-mentioned payment clause and held the petitioner liable for causing damage to goods and disruption of the business.

The court held that in view of the fact that the Arbitrator has passed the award after interpreting the agreement clauses and same being reasonable and not opposed to the logic, the court cannot interfere with its findings unless the same is found to be against public policy and patently illegal.

Court also noted that as a natural corollary of the interpretation the contract was deemed as renewed and eviction as illegal therefore, finding relating to grant of compensation are also justified and reasonable keeping in view disruption caused in the business for 5 years, term which was renewed, after finding sales to be satisfactory and also damages to the stock while petitioner was incharge of the said premises.

APPEARANCE:

Shariq J Riyaz Advocate. FOR Petitioners

Z.A.Shah Sr. Advocate with

Mr. Hanan. (adv)

Jahangir Iqbal Ganai Sr. Advocate with

Owais Dar and Mehnaz Rather Advocates for Respondents

Case-Title: Zaffar Abbas Din vs Nasir Hamid Khan, 2025

Citation: 2025 LiveLaw (JKL) 37