'As Is Where Is' In A License Agreement Does Not Absolve The Contracting Parties To Make A Minimal Disclosure: Delhi High Court

The Single Bench of Justice Vibhu Bakhru ruled that the Indian Evidence Act, 1872 does not apply to the proceedings before the Arbitral Tribunal and that the Court was not required to reappreciate every material or piece of evidence that was placed before the Arbitral Tribunal.

India Tourism Development Corporation (ITDC), a Government Company under the Ministry of Tourism, Government of India, owns several properties under the brand 'Ashok Group of Hotels'. Bougainvillea Multipex & Entertainment Centre Pvt Ltd (BMEL) entered into an agreement with ITDC, wherein ITDC granted Leave and License to BMEL to operate a Restaurant cum Night Club within the premises of the Ashok Hotel on an 'as is where is basis'.

After a dispute arose between the parties over water leakage in the premises, BMEL terminated the Agreement and filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator. The Arbitral Tribunal allowed the claims of BMEL, ruling that ITDC was in fundamental breach of the Agreement, and allowed damages to BMEL. The Tribunal ruled that handing over the premises on an 'as is where is basis' did not absolve ITDC of its obligation to ensure that the premises were fit for the purpose for which they were licenced. ITDC filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court against the arbitral award rendered by the Arbitral Tribunal.

The Counsel for ITDC submitted before the High Court that the finding of the Arbitral Tribunal that ITDC was in fundamental breach of the Agreement was ex facie erroneous. He contended that ITDC had licenced the premises on an 'as is where is basis' and therefore, it could not be held responsible for any water leakage that had developed in the roof of the premises. Also, it was averred that the Arbitral Tribunal had relied upon the report of an Independent Engineer which was neither signed nor brought in evidence, therefore he claimed that the award was not based on any evidence. The Counsel for BMEL submitted that the arbitral award was well reasoned and was rendered after appreciation of evidence and therefore, the award could not be interfered with under Section 34 of the A&C Act.

The High Court observed that the Arbitral Tribunal had ruled that stipulating the condition of 'as is where is basis' did not absolve ITDC from disclosing that the premises had a temporary roof, which was otherwise not evident on a visual inspection. The Court ruled that the view of the Arbitral Tribunal could not be held to be not plausible. The Court held that stipulating the condition of 'as is where is' does not absolve the contracting parties to make a minimal disclosure.

"The award of damages is premised on the finding that ITDC had breached its obligations to make a fair disclosure regarding the Premises and to ensure that the same was fit for the purpose for which the same was licenced. Thus, this Court is unable to accept that any interference is warranted in regard to the said award of damages."

The Court added that Indian Evidence Act, 1872 does not apply to the proceedings before the Arbitral Tribunal and therefore, sensu stricto the Arbitral Tribunal was not precluded to rely upon the Certificate of the Independent Engineer, even though the said Certificate was not signed by the person who had carried out inspection of the premises. The Court ruled that it was not required to reappreciate every material or piece of evidence that was placed before the Arbitral Tribunal and that the decision of the Arbitral Tribunal as to the evidentiary value of the Certificate was final.

"The impugned award cannot be interfered with on the ground that one of the documents may be inadmissible in evidence or is of little evidentiary value."

The Court thus upheld the arbitral award with respect to damages in favour of BMEL.

The Court however, set aside the award of loss of profit and loss of reputation and goodwill to BMEL as being inconsistent with the findings of the Arbitral Tribunal that the said claim was unsubstantiated.

Case Title: India Tourism Development Corporation Ltd (ITDC) versus Bougainvillea Multipex & Entertainment Centre Pvt Ltd (BMEL)

Citation: 2022 LiveLaw (Del) 272

Dated: 01.04.2022 (Delhi High Court)

Counsel (s) for the Petitioner: Mr Ravi Sikri, Senior Advocate with Ms. Shweta Bharti, Mr. Manoj Kumar, Mr. Sukrit R. Kapoor, Mr. Deepank Yadav and Mr Nitesh Sachdeva, Advocates

Counsel (s) for the Respondent: Mr T.K. Ganju, Senior Adovcate with Mr. Prantik Hazarika, Mr Deepak Chawla and Mr Aakash Khattar, Advocates

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